COT: Dollar long extends further, record bond short seen

Ole Hansen

Head of Commodity Strategy

To download your copy of the Commitment of Traders: Forex report for the week ending August 14, click here

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Speculators increased the dollar long against nine IMM currency futures by $1.6 billion to $23.9bn in the week to August 14. This the most bullish dollar exposure in 20 months has led to short positions now being held in all but two of the nine contracts. 

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The biggest change was the euro position turning net-short for the first time since May 2017. The euro hit a fresh one-year low last week in response to the risk of contagion from the Turkish lira collapse. 
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Leveraged funds sold bonds into a rising market last week and following nine consecutive weeks of selling, the DV01 – being the dollar value of a one basis point move – rose to $237 million, probably a record. 
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The increase was primarily driven by continued selling of 10-year notes and T-bonds Ultra, both of which reached a new record short. This came despite bond yields move lower in response to the deteriorating outlook for Turkey and other heavily indebted emerging market economies.

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In equities the main change was short-covering in S&P’s while the Cboe VIX net-short rose by 18,000 lots to a nine-month high. The February volatility surge that saw short VIX ETFs blow up seems to have been forgotten. Rising US stocks and the volatility curve back in contango has resulted in traders once again riding the curve by picking up the risky but positive carry that is derived from being short volatility.
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