Changes in the latest Commitments of Traders Report are fairly similar to last week. Traders are once again increasing their bullish bets on the Japanese yen and the British pound. Yen speculators are now net long for the first time since November 2016. On the bearish side, traders continue to bet against commodity currencies including the Australian dollar and the Canadian. While speculators bought gold last week, this pattern reversed in the most recent COT report (despite recent strength in the precious metal).
Turning to positioning, net long positions in the Japanese yen, British pound and crude oil remain at bullish extremes. The quick reversal in yen positioning is particularly noteworthy, as net positioning was at bearish extremes last November. Thanks to slowing growth (particularly in the Eurozone) and rising fears of a trade war, speculators are seeking refuge in the currency.
The purpose of this weekly report is to track how the consensus is positioned across various major currencies and commodities. When net long positions become crowded in either direction, we flag extended positioning as a risk. Crowded positions do not suggest an imminent reversal, but should be considered as a significant risk factor when investing in the same direction as the crowd. This is shown below:
CFTC COT speculator positions (futures & options combined) – April 3, 2018
Notable extremes, significant changes in weekly positions, and large net positions as a proportion of open interest are highlighted above. Extremes in net positions are highlighted when speculator positioning is more than two standard deviations above trailing 1-year and 3-year averages. Weekly changes are highlighted when they are significant as a proportion of open interest. Finally, net positions as a proportion of outstanding interest are highlighted when they are large relative to historical averages. 1-year and 3-year z-scores are visually represented below:
1-year and 3-year z-scores based on net speculator positions
Looking at the latest changes in more detail, the biggest moves have occurred in the Australian dollar and the Japanese yen. As US-China trade tensions rose last week, Australian dollar traders were unnerved given the country’s significant trading relationship with China. The net speculator position in AUD futures and options fell by 7,503 contracts as a result. Traders in the Canadian dollar (another commodity currency) were also spooked by news and events last week, and added to their bets against CAD. The net speculator position in the Canadian dollar fell by 4,535 futures and options contracts last week.
As global risk appetite continues to sour, traders have been buying the Japanese yen (a traditional safe haven currency). Demand for the yen has also been rising thanks to the ongoing Moritomo school land scandal in Japan. As the odds of Abe’s resignation increase, the future of “Abenomics” is looking risky, adding to recent yen strength. Last week, speculators added 8,399 futures and options contracts to their net long position in the currency.