Head of Commodity Strategy, Saxo Bank Group
Summary: May's market distress saw a $3.6 billion reduction in the dollar long as USD struggled for a risk-off boost due to extended speculative positioning.
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The dollar long against 10 IMM currency futures rose for a second week by 1% to $31.4 billion. The May carnage across other markets, however, resulted in a net $3.6 billion reduction in the dollar long. Part of the reason why the dollar has struggled to respond positively to the risk-off sentiment comes down to the fact the speculative positioning is already long. In addition to this, the market has now begun waking up to the fact that the US Federal Reserve is likely to get off the fence and begin cutting rates sooner than was expected a month ago.
The renewed slump in bond yields helped drive short-covering by leveraged funds at the front of the US yield curve.
The Commitments of Traders (COT) report is issued by the US Commodity Futures Trading Commission (CFTC) every Friday at 15:30 EST with data from the week ending the previous Tuesday. The report breaks down the open interest across major futures markets from bonds, stock index, currencies and commodities. The ICE Futures Europe Exchange issues a similar report, also on Fridays, covering Brent crude oil and gas oil.
In commodities, the open interest is broken into the following categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money and other.
In financials the categories are Dealer/Intermediary; Asset Manager/Institutional; Managed Money and other.
Our focus is primarily on the behaviour of Managed Money traders such as commodity trading advisors (CTA), commodity pool operators (CPO), and unregistered funds.
They are likely to have tight stops and no underlying exposure that is being hedged. This makes them most reactive to changes in fundamental or technical price developments. It provides views about major trends but also helps to decipher when a reversal is looming.
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