COT: Greenback remains exposed to long liquidation

Forex 5 minutes to read

Ole Hansen

Head of Commodity Strategy

Summary: A reduction in bullish dollar bets was seen in the week to November 13 with USD remaining exposed to long liquidation.

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

To download your copy of the Commitment of Traders: Forex report for the week ending November 13, click here.

To download your copy of the Commitment of Traders: Financials report for the week ending November 13, click here.

IMM currency futures

Speculators reduced bullish dollar bets against nine IMM currency futures by $1.9 billion to $28bn. This despite seeing the dollar index reach a 17-month high as the euro temporarily dropped below €1.13 and Brexit jitters once again hit sterling. Dollar long positions were pared against most with the exception being the 15% increase in the yen net-short.

Non-commercial USD position v. nine IMM currency futures

The greenback remains exposed to long-liquidation with speculative traders holding short positions in seven IMM currencies with the exception being small longs in the Mexican peso and the Russian ruble.

Fixed income, stock indices and VIX

In fixed income, leveraged funds were sellers and asset managers buyers across the whole yield curve. This was particularly the case in Ultra T-Bonds where leveraged funds increased the net-short by 9% to a fresh record of 481,000 lots. The DV01, which measures the dollar value of a one basis point move in yield, jumped by $14 million to $271.5m, a new record.

Expanding the focus from leverage traders, we can see how the total futures open interest across the US yield curve is broken down into the different categories defined by the CFTC.

This shows how for months now, continued selling by leveraged traders or speculators (as they are often referred to) has been absorbed by asset managers or real money investors. They can not both be right, and given their often short- versus long-term, focus the risk seems skewed to the upside – i.e. towards lower yields.

The CFTC reporting period covered the Federal Open Market Committee meeting and strong PPI reading before rallying on renewed stock market weakness combined with the deflationary impact of falling oil prices. During this time, US 10-year yields dropped to 3.14% from 3.23%. All three major stock indexes were sold while the VIX net-long reached a seven-month high after six weeks of buying.

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