COT: Brent long cut to ten-year low; Metals left unprepared for end of week slump
Ole Hansen
Responsable de la Stratégie Commodity
Key points:
- Five weeks of dollar selling cuts long in half
- Profit taking in gold and copper point to consolidation
- Crude oil buyers returned ahead of OPEC+ meeting
- In demand were WTI crude, natural gas, soybeans complex, cotton and cattle
- Sellers focused on gold, copper, corn and hogs
Forex
The non-commercial dollar long versus eight IMM futures and the dollar index extended a succession of weekly declines to five, and during this time the gross dollar long has been cut by 53% to USD 15 billion during a period where the dollar index drifted lower by just one percent. In the latest reporting week to 28 May, speculators bought 16.1k contracts of euros (USD 2.2 billion equivalent), 24.3k sterling (USD 1.9 billion) as well as CAD, AUD, and NZD while adding 11.7k contracts or USD 0.9 billion equivalent to the yen short.
COT on Commodities
The latest Commitment of Traders (COT) report covered a week to 28 May when the Bloomberg Commodities Total Return Index traded near unchanged following a very mixed week that saw strong gains in softs, and to a lesser extent energy and grains, being offset by losses in precious and industrial metals.
Managed money accounts responded to these developments by adding length back into the energy sector while continuing to scale back short positions across the grains sector. Weeks of strong demand across the precious and industrial metal sectors saw a small reversal, primarily due to profit-taking in gold and copper, developments that may signal the beginning of a period of consolidation across two sectors that have witnessed strong gains so far this year.
On an individual level, net buying was concentrated in WTI crude, natural gas, soybeans complex, cotton, and cattle, while sellers focused on gold, copper, corn, and hogs.
What is the Commitments of Traders report?
The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.
Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)
The main reasons why we focus primarily on the behavior of speculators, such as hedge funds and trend-following CTA's are:
- 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
Do note that this group tends to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a through in the market.
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