Speculators Continued To Reduce U.S. Dollar Exposure At What May Be The Bottom

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Includes: FXA, FXB, FXC, FXE, FXY, OIL, TLT, USO, UUP
by: Marc Chandler

Summary

Speculators extended long yen exposure.

Speculators added to the gross long foreign currency position of 7 of the 8 foreign currency futures we track; the exception was sterling.

Bears covered short oil futures positions and drove the 45k contract increase in the net long speculative position.

Speculators in the futures market continued to press a bearish view of the US dollar the CFTC reporting week ending April 19. According to the Commitment of Traders report, speculators added to their gross long currency futures position in seven of the eight currencies we track. The exception was the British pound, where speculators liquidated a minor 1.1k contracts, leaving them with 32.8k gross long sterling future contracts.

That said, most gross currency adjustments were small, but again except sterling, the direction of change in the net positions was consistent - either longer foreign currencies or less short them. There were only two gross position adjustments we regard as significant, which is change of 10k or more contracts.

The bulls added 12k euro contracts to their gross long position, lifting it to 101.2k contracts. The bears sold into the euro gains and increased their gross short position by 6.9k contracts. The gross short euro position peaked last December at 262k contracts. It stood at 148.1k contracts at the end of the latest reporting period.

The Mexican peso accounts for the second significant adjustment by speculators. The bears capitulated and covered about a third of their gross short position (28.8k contracts) to 58.3k. The gross longs increased by 3.4k contracts (to 43.9k). As a result of these gross position adjustments, the net position was reduced to short 14.4k contracts from 46.6k.

We note that although it was a modest change, speculators increased their gross and net long yen position to new record levels. The bulls increased the gross short yen position by 5.6k contracts to 105.7k. The bears covered less than 100 contracts, leaving 33.8k. These transactions increased the net long position to 71.9k contracts from 66.2k.

Speculators are net long the yen, the three dollar-bloc currencies, and the Swiss franc. Speculators are net short euro, sterling, and Mexican pesos. Our hypothesis is that, given the interest rate differentials, the foreign currency bulls in the yen, and Swiss franc are more vulnerable than in the dollar-bloc currencies, which are backed by higher yields. We anticipate that the gross long yen and franc positions will fall in the next report.

The bears and bulls fought to a draw in the US 10-year Treasury note futures. Speculators added 10.7k contracts to their gross long position (to 480k contracts). They also added 10.6k contracts to their gross short position (to 504.3k). This produced a negligible change in the net short position, which stands at 24.3k contracts.

The bearish speculators in the futures market covered 35.2k gross short light sweet oil futures contracts, reducing the gross short position to 205.9k contracts. Bullish speculators added 9.8k contracts to lift their gross long position to 540.0k contracts. The net long speculative position increased by 45k contracts to 334.2k.

19-Apr

Commitment of Traders

Net

Prior

Gross Long

Change

Gross Short

Change

Euro

-46.9

-52.1

101.2

12.0

148.1

6.9

Yen

71.9

66.2

105.7

5.6

33.8

-0.1

Sterling

-55.2

-51.3

32.8

-1.1

87.9

2.8

Swiss Franc

9.4

8.2

19.9

2.4

10.4

1.2

C$

7.3

2.4

32.5

3.5

25.2

-1.4

A$

44.1

35.1

97.5

6.7

53.4

-2.3

NZ$

5.4

4.3

22.7

1.2

17.3

0.1

Mexican Peso

-14.4

-46.6

43.9

3.4

58.3

-28.8

(CFTC, Bloomberg) Speculative positions in 000's of contracts

Click to enlarge

Disclosure: I/we 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.