COT: Lukewarm dollar buying continues

Forex

Ole Hansen

Head of Commodity Strategy

Summary:  Speculators continue to show hesitancy in getting on board the current dollar rally. Despite seeing the Dollar Index hitting a three-year high the dollar long against ten IMM currency futures and the Dollar Index stayed well below last years peak.


Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

Lukewarm best described speculators reaction to the continued dollar rally in the week to February 18. While buying of the Greenback extended into a fifth week the pace of long accumulation, considering the DXY hitting a three-year high, remained relatively slow. The combined long against ten IMM currency futures and the Dollar Index rose by $2.1 billion to $13.6, a two months high, but still well below the April 2019 peak at $38 billion.

The selling was, with the exception of Sterling, broad-based but not particularly aggressive. This approach was perhaps already vindicated Friday when a surprisingly weak U.S. Services PMI helped send the dollar sharply lower.

The biggest short – by far – was held in the euro at $12.4 billion equivalent. It was followed by the Japanese yen at  $3.1 billion and the Aussie dollar at $2.5 billion. The reaction to the breakout in USDJPY above the downtrend from 2015 occurred on Wednesday, the day after this reporting week ended.

Leveraged fund positions in bonds, stocks and VIX

Leveraged funds reduced their net-short in U.S. 10-year Note futures by 28k lots to 643k lots, an 18-month low.

What is the Commitments of Traders report?

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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