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GBP/USD & EUR/USD Longs Capitulate on USD Short Squeeze - COT Report

GBP/USD & EUR/USD Longs Capitulate on USD Short Squeeze - COT Report

Justin McQueen, Analyst

US Dollar, GBP/USD, EUR/USD, COT Report –Analysis

  • GBP/USD & EUR/USD Longs Liquidated
  • USD Shorts Cut by a Third
  • Stretched CHF Longs May Be Vulnerable

GBP/USD & EUR/USD Longs Capitulate on USD Short Squeeze - COT Report

In the latest CFTC reporting period, which covered the aftermath of the surprise hawkish FOMC pivot, speculative net short positioning in the US Dollar was aggressively unwound, falling over $6bln. The bulk of the USD short squeeze took place against the Euro and the Pound as net longs were slashed by $4.3bln (4.2% of OI) and $1.2bln (10% of OI ) respectively. The sell-off much more pronounced in the Pound given the stretched net long positioning. What’s more, recent pushback by the BoE of premature tightening, provided another hit to GBP bulls (likely shown in the next update). That said, positioning remains an issue for GBP, albeit less so, leaving the currency vulnerable to sharp pullbacks, should risk sentiment soften.

Across the rest of the G10 space saw modest increases in net longs (on an OI adjusted basis) against the USD. A marginal pick up in CAD and AUD net longs, which is somewhat reflective of the price action seen last week and potentially indicative of summer trading conditions with speculators seeking pro-cyclical currencies vs low yielders. Regarding the Canadian Dollar with BoC tightening well priced into the currency, coupled with the fact that positioning is stretched (97% rank), the Loonie may underperform vs AUD, which will play catch up provided the RBA brings forward rate hike expectations to 2023 from 2024.

Elsewhere, the Swiss Franc had been in demand, particularly among leveraged accounts (fast money). Although, in light of the Fed’s pivot and with the SNB remaining very accommodative, risks look to be asymmetrically tilted to the upside in USD/CHF. While high-beta currencies may also perform well against CHF (AUD/CHF and NZD/CHF).

Weekly FX Positioning

GBP/USD & EUR/USD Longs Capitulate on USD Short Squeeze - COT Report

Source: CFTC, DailyFX (Covers up to June 22nd, released June 25th)

The Analytical Abilities of the COT Report

How to Read the CFTC Report

US Dollar Positioning

GBP/USD & EUR/USD Longs Capitulate on USD Short Squeeze - COT Report

Source: Refinitiv, DailyFX

EUR/USD Positioning

GBP/USD & EUR/USD Longs Capitulate on USD Short Squeeze - COT Report

GBP/USD Positioning

GBP/USD & EUR/USD Longs Capitulate on USD Short Squeeze - COT Report

Source: Refinitiv, DailyFX

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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