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COT Report: Analysis and Talking Points

  • Japanese Yen Shorts Accelerate Reduction
  • Short Squeeze Seen in Euro
  • USD Bullish Bets See Notable Reduction

The Predictive Power of the CoT Report

COT Report: Japanese Yen and Euro Shorts Collapse, USD Longs Reduced

Source: CFTC, DailyFX (Covers up to May 14th, released May 17th)

USD net long positioning saw a sizeable reduction of $4.6bln vs G10 FX, led by the paring of net short Euro ($1.5bln) and Japanese Yen ($3.4bln) positions. The latter saw a notable liquidation of gross JPY shorts, which now outweighs gross longs by 2.7:1 (Prev. 4.5:1). While a short squeeze in the Euro had also contributed to the reduction in net shorts.

Elsewhere, Australian Dollar net short positioning saw a modest increase of $445mln with gross shorts now at the highest since October 2018 peak. Speculators continue to show signs of unease with regard to the escalation in trade war tensions between the US and China, while the risk of an RBA rate cut at the June meeting also provides a headwind.

IG CLIENT POSITIONING:

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IG client datashows 79.9% of traders are net-long with the ratio of traders long to short at 3.98 to 1. In fact, traders have remained net-long since Apr 23 when AUDJPY traded near 80.011; price has moved 5.5% lower since then. The number of traders net-long is 1.2% higher than yesterday and 22.9% higher from last week, while the number of traders net-short is 12.9% lower than yesterday and 13.3% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUDJPY prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger AUDJPY-bearish contrarian trading bias.

US Dollar

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EURUSD

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GBPUSD

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USDJPY

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USDCHF

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USDCAD

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AUDUSD

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NZDUSD

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KEY TRADING RESOURCES:

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX