US Dollar, EUR/USD, GBP/USD, COT Report –Analysis
- Euro Bulls Head for the Exit as US Dollar Faces a Short Squeeze
- Negative Concoction for the Pound as Positioning Moves Back to Neutral
- Australian Dollar Flips Bullish at the Wrong Time
The Predictive Power of the COT Report
Source: CFTC, DailyFX (Covers up to September 15th, released September 18th)
Euro Bulls Exiting, GBP/USD Negatives Rise, AUD/USD Flips Bullish - COT Report
In the latest reporting week, speculators have more meaningfully reduced their US Dollar shorts, which were cut by $1.89bln against G10 currencies. As risk sentiment looks to remain fragile heading into the US election, particularly with a resurgence of COVID cases, the US Dollar may stand to gain going forward, with a reversal likely to be exacerbated by a squeeze in bearish bets.
Positioning in the Pound moved back to neutral territory after net longs were slashed by $848mln following a jump in outright shorts. As GBP faces a poisonous concoction of negative BoE rate chatter, heightened Brexit uncertainty and risks of renewed lockdown measures amid an increase in COVID cases, I am a not convinced that GBP/USD has established a floor and thus risks a deeper setback.
The Euro saw a sizeable cut in net longs of $2.5mln, however, given that positioning remains stretched, conditions appear ripe for a greater retracement in the Euro, allowing for a greater clear out of net longs. Elsewhere, the Australian Dollar flipped to net long following a $1.3bln boost, prompted by a short squeeze. That said, in light of the current backdrop, this may be the wrong time to flip bullish.
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