COT: Dollar long jumps on virus concerns

Forex

Ole Hansen

Head of Commodity Strategy

Summary:  Speculators bought bought dollars, Japanese yen and Swiss franc as the market continued the grapple with the potential economic fallout from the coronavirus outbreak.


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.

In the week to February 4 hedge funds and other large speculators bought dollars for a third week. Global growth uncertainties created by the 2019-nCoV outbreak in China attracted buyers to dollars, Japanese yen and Swiss Francs while the euro and the commodity currencies of the Canadian and Aussie dollar bore the brunt of the selling.

Overall the dollar long against ten IMM currency futures and the Dollar Index jumped by 65% or $3.9 billion to $9.8 billion, a five-week high. The selling of euro boosted the net shorts to 75k lots, the most bearish since October while the long position in the Swiss franc at 5k lots was the most bullish since December 2016.

Despite the first reduction in five weeks the Mexican peso position totaled 165k lots and it remained the second most favored long after the Greenback.

Leveraged fund positions in bonds, stocks and VIX

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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