2 Extremely Crowded Currency Trades

by: Movement Capital


Bonds: Traders are betting on a steeper Treasury yield curve. They're short the 30-year bond and long the 5-year.

Commodities: Hedgers are extremely long cocoa and short feeder cattle. Speculators have ramped up their long exposure to gold since March. They're also extremely short soybeans.

Currencies: Traders are betting on a stronger AUD/USD and MXN/USD. We saw some fairly aggressive short covering in GBP/USD last week.

Stocks: Money managers are still less bullish on the Nasdaq vs. the Dow. Traders covered a few VIX shorts last week.

Note: My approach for analyzing CoT data to reveal how different types of traders are positioned in the futures markets is outlined here. If you missed it, give the article a read to see the method behind my analysis. All data and images in this article come from my website.

This article outlines how traders are positioned and how that positioning has recently changed. I break down the updates by asset class, so let's get started.


Traders covered shorts in 30-year bond (NYSEARCA:TLT) futures last week. Overall though, they still have a significant short bias.

The opposite is true in the 5-year (NYSEARCA:IEI). Speculators are extremely long, betting on lower 5-year yields.


Cocoa (NYSEARCA:NIB) producers & users haven't been this bullish on the commodity in five years.

The price of feeder cattle has shot up over the past few weeks. Speculators, which are typically trend followers, are extremely long.

Crowded long positioning, which I define as a 5-year percentile of net positioning as a % of OI > 90%, isn't simply a reason to go short. Traders who are long feeder cattle have zero incentive to sell as long as the trend goes their way. If the price of feeder cattle were to break down, then that might be a reason for concern. This is because you would start seeing a large number of people heading for the exits (to close long position) at the same time. I call this a "fire in the theater" situation.

Traders have steadily added to their long exposure in gold (NYSEARCA:GLD) since the lows last December.

In my opinion, positioning in soybeans (NYSEARCA:SOYB) one of the most interesting CoT developments. Traders have quickly shifted their stance on the agricultural commodity and are now massively short.

The long positioning in WTI crude oil (NYSEARCA:USO) is nowhere near as crowded as it was earlier this year.


Ever since last January, speculators have maintained a big short position in GBP/USD (NYSEARCA:FXB) futures. They were on the right side of the trade for months, but now the British pound is starting to rally against the USD and we might be witnessing the beginning of a large short covering.

The Australian dollar (NYSEARCA:FXA) is in a completely different boat. Speculators have rarely been this long. A bullish stance on AUD/USD is typically synonymous with a positive outlook on global growth.

Traders went into the French vote fairly long EUR/USD (NYSEARCA:FXE).

MXN/USD (NYSEARCA:FXM) might be the most under the radar crowded trade in the market. Speculators are extremely long and betting on a stronger Mexican Peso. It's crazy just how quickly positioning flipped from the bearish consensus after the election.


Traders went into 2017 underweight the Nasdaq (NASDAQ:QQQ) relative to the DJIA and S&P. As markets tend to prove time and time again, the unexpected ends up happening.

Here's what positioning looked like in the Dow (NYSEARCA:DIA).

Speculators covered some of their VIX (NYSEARCA:VXX) shorts last week. Most of you have probably seen a chart of the huge outstanding short position in VIX futures. While this number is big, it needs to be adjusted for the growth in the size of the VIX futures market. My 5-year percentile does just that. As you can see, the short position of speculators isn't that big relative to the past.


So what are the main takeaways from this week's CoT data? Three things:

  1. Traders are very bearish on agricultural commodities. It's the only commodity sector without any crowded long positioning
  2. Optimism is rampant in MXN/USD and AUD/USD futures. This points to people betting on the reflation trade continuing, with higher inflation and higher growth
  3. In aggregate, speculators are positioned for a steeper Treasury yield curve. They're short the 30-year and long the 5-year

If you have any questions about CoT data, don't hesitate to ask me in the comments below.

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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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The author does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked in this article or incorporated herein. This article is provided for guidance and information purposes only. Investments involve risk are not guaranteed. This article is not intended to provide investment, tax, or legal advice. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

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