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US Dollar Short Squeeze Risks, JPY Longs Short-lived - COT Report

US Dollar Short Squeeze Risks, JPY Longs Short-lived - COT Report

Justin McQueen,

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

  • US Dollar Short Squeeze Risks
  • JPY Bulls Head for an Early Exit

The Predictive Power of the COT Report

How to Read the CFTC Report

Source: CFTC, DailyFX (Covers up to November 17th, released November 20th)


US Dollar Short Squeeze Risks, JPY Longs Short-lived - COT Report

In the latest reporting week to November 17th, CFTC data showed that speculators have re-engaged with unwinding USD shorts. This had largely been against funding currencies, in particular the Japanese Yen, which as I mentioned last week, would likely see an exit of long positions following recent vaccine updates. To that end, JPY longs were cut by $1.4bln with net long exposure now standing at $3.5bln. That said, while the current market consensus is for persistent USD selling on the back of synchronised global growth, near-term uncertainties do still pose a short-term risk, thus bouts of US Dollar short squeezes cannot be ruled out.

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The Euro has continued to see a reduction in net longs with positioning cut by another $118mln. However, while I acknowledge the fact that CFTC data does not cover the whole Euro market, spot prices have remained resilient in light of risks regarding the recent veto by Poland and Hungary over the rule of law, while market complacency also looks apparent amid optimism over vaccine results.

Investors grew more bearish on the Pound, albeit slightly with net shorts up by $166mln. I turn, while this is likely to fuel a pop higher in GBP in the likely outcome that the EU and UK agree a trade deal, the fact that the market base case is for a trade deal to be struck, there is a risk of a “buy the rumour, sell the fact”, particularly when the economic backdrop for the UK remains a challenging one.

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