Head of Commodity Strategy
The latest report, covering the week to 28 April, captured another relatively calm period in FX markets, with stalemate in the Middle East, stable bond yields and firmer equity markets helping lift the Dollar Index by a modest 0.3%. Overall, speculators maintained an almost unchanged gross dollar long versus eight IMM futures at USD 12 billion, as selling of the EUR, CHF, GBP and JPY was broadly offset by demand elsewhere, most notably a one-third reduction in the CAD net short.
At the individual currency level, the standout development was the JPY, where continued selling pushed the net short to near a two-year high of 102k contracts, just before the Bank of Japan stepped in and, according to multiple reports, spent more than JPY 5 trillion (USD 32 billion) supporting the currency after USDJPY once again moved above 160. However, with the yen only managing a 1.4% gain following the reporting week, questions remain over the intervention’s effectiveness, including how much of the existing short position ended up being squeezed during those days of official support.
In the latest COT reporting week to 28 April, the Bloomberg Commodity Index rose a strong 3.2%, with renewed strength in crude oil and fuel products feeding into another week of gains across grains through the biofuel link. Weather-related crop concerns and the fertiliser crisis added further support, underpinning the ongoing rotation into energy, grains and selected softs, while mixed metals flows were mostly geared towards continued selling. In crude oil, an 11% price jump lifted the combined net long by 10k to 492k contracts, still below the March peak at 554k. The bulk of the exposure, 383k contracts, was held in Brent, the global benchmark. In natural gas, continued selling pressure cut the net long in half, leaving it near neutral at 11.6k contracts. In metals, the gold net long was cut to a fresh two-year low at 91.6k contracts. Silver saw a tentative amount of fresh buying, while the copper net long rose for a third week to 60.8k contracts, a 70% increase over the period. In grains, the combined net long across the six Chicago-traded soy and grain contracts jumped to a fresh four-year high and the highest seasonal level since the CFTC began collecting grains data back in 2006. Buying was led by corn and wheat, with the latter reaching an 11k net long after managed money accounts had, until recently, traded the contract from the short side for almost four years amid ample supply and a contango structure favouring short holders. The one-year contango remains elevated at 12%, helping explain why speculators have not rushed into a contract that is already up around 25% year-to-date. Elsewhere, buyers returned to sugar following a recent short-selling rush. The cocoa net short reached its highest level since November 2022 at 20k contracts, while uninterrupted buying of cotton extended into an eighth week, lifting the net long to a two-year high. In livestock, a fresh record high in live cattle futures at USD 2.56 per pound supported an elevated net long at 137k contracts.
The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.
Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)
The main reasons why we focus primarily on the behavior of speculators, such as hedge funds and trend-following CTA's are:
Do note that this group tends to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a through in the market.
| More from the author |
|---|
|
Outrageous Predictions
Head of Investment Content Switzerland
Outrageous Predictions
Senior Relationship Manager
Outrageous Predictions
Chief Investment Strategist
Outrageous Predictions
Saxo Group
Outrageous Predictions
Chief Investment Strategist
Outrageous Predictions
Global Head of Investment Strategy
Outrageous Predictions
Investor Content Strategist
Outrageous Predictions
Global Head of Macro Strategy
Outrageous Predictions
Global Head of Macro Strategy
Outrageous Predictions
Global Head of Macro Strategy