Each week we compile from the most recent COT report, a total of the net long and short positions of the major currency futures plus the Dollar Index. These net positions are taken from the COT long form which includes both futures and options which gives a more accurate portrait of the speculators positions.
In the most recent COT report based on data from, April 22, 2014, the net position of the speculators was USD longs of 132,870 contracts, in the yen and the Canadian dollar and the DI, and USD shorts versus longs in the euro, pound, Swiss franc, the New Zealand and Australian dollar. The total number of the USD shorts was 127,742 contracts. This meant the net position was a USD long of a mere 5,128 contracts.
The biggest net position is in the yen which the specs are short and long the USD. Eliminate the yen trade from the mix, and the net position against the other currencies results in a USD short of 87,176 contracts.
The speculators have been net long the USD for well over a year. The largest net long in the USD was the COT report of May 28th, 2013. At that time, specs were long 540,479 contracts of the USD against sales of the other currencies. Thus, for the last eleven months speculators have been selling out their massive USD long position. Granted this selling was intermittent, but the result was the same, persistent USD selling.
In currencies, the money flow is all important. The lackluster performance of the USD for much of the past year can partially be attributed to long USD selling. Momentum usually results in more selling despite today's weak US economic numbers. Over the longer term selling might not be a good idea.
Last week Ambrose Evans-Pritchard had some interesting USD friendly comments in The Telegraph, an article titled:
America has conquered its debt crisis with incredible speed.
Americans are purging their excesses one by one. Spending by the US Federal government has seen the steepest drop as share of national income since demobilisation after the Second World War. ......
The US Congressional Budget Office expects the budget deficit to drop to 2.8pc of GDP this year, and 2.6pc next year. This is about the same as the eurozone but with a huge difference. The US economy is expanding fast enough to outgrow its debts.
The US energy revolution is of course half the story. It has stoked booms across the Dakotas, Wyoming, Nebraska, Washington, Oregon, Utah and Texas.
Francisco Blanch, from Bank of America, estimates that shale gas and oil have given the US economy an extra tailwind worth 1.9pc of GDP - what he calls the "energy carry" - with effects rippling through the chemical and plastics industries. New investments in ammonia plants are rising at an exponential rate, thanks to natural gas prices that are $4.40 (per BTU) in the US and $15 on Asia's spot market.
The US transferred more than $3 trillion to oil exporters from 2001 to 2008. That chapter is closed. The US is back to where it was in 2000 with an energy deficit well below 2pc of GDP and improving every month, while the eurozone is at -4.4pc and getting worse, and Japan is at -6.3pc.
The US has added 2.5m barrels a day of crude output over the last three years, almost as much as the next three countries combined. America covered a quarter of its oil needs in 2007. It covers well over half today. It has overtaken Russia to become the world's biggest exporter of refined petroleum products, and will soon be an exporter of liquefied natural gas as well.
US refined petroleum products are now, not only being shipped to Central and South America, but to West Africa as well. There is a US law which prohibits the exportation of crude oil to any destination except Canada. This, combined with increased US production and the surplus US Gulf refining capacity, make the trade possible. Where will the USD be if the $3 trillion energy deficit becomes a multi-trillion surplus?
Today, the US fundamental numbers fell short of expectations. The US GDP was up only 0.1% in Q1. Had it not been for higher consumer spending because of winter heating costs, and the record quarterly medical spending, in part because of the new Affordable Medical Care Act, the number would have been negative. The US equity bulls are already touting a rapid bounce and 2.5% to 3.0% second quarter growth.
Perhaps there is enough negative sentiment on the USD to result in further buying of the euro, pound and the Swiss franc. The numbers coming later this week may give us some added volatility. Should this result in a euro rally versus the USD (EURUSD, FXE, UUP. UDN ) to the 1.39/1.40 area, we view this as a level to establish shorts.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.