US Dollar, EUR/USD, USD/JPY, COT Report –Analysis
- US Dollar Shorts at Risk as Market Sentiment Sours
- Japanese Yen in Demand
- GBP/USD Shorts Unwind
The Analytical Abilities of the COT Report
Source: CFTC, DailyFX (Covers up to December 1st, released December 4th)
US Dollar Bears At Risk, Japanese Yen In Demand - COT Report
In the week to December 1st, sentiment in the US Dollar had weakened yet again with net shorts rising by circa $1.5bln. However, with markets seemingly priced to perfection amid the recent vaccine optimism, risk-off set-backs are likely to prompt a short squeeze in the US Dollar given how oversold the greenback is.
Net longs in the Euro grew by $563mln as EUR/USD broke key topside resistance to hit fresh multi-year highs. However, with EUR/USD firmly above 1.20, risks are rising over renewed ECB jawboning which could see a short-term cap on further Euro upside. Elsewhere, the biggest mover had been the Japanese Yen with net-longs jumping by $876mln.
The Pound saw a meaningful pullback in short exposure, which had been cut by $768mln. Although, as I noted last week, a reduction in net-shorts lowers the potential for a sustainable move higher on the back of a deal. As such, risks are becoming asymmetrically tilted to the downside, particularly as option markets are continuing to highlight demand for downside protection.
| Change in | Longs | Shorts | OI |
| Daily | 1% | 5% | 3% |
| Weekly | -10% | 20% | 5% |
Across the commodity currencies, both AUD and CAD saw an increase in shorts, which is at odds with recent price action, most notably in the latter which has hit fresh cyclical highs. That said, with oil prices supported by the latest OPEC decision to largely maintain production caps, the CAD may steadily outperform against its commodity counterparts (AUD, NZD).
US Dollar |
EUR/USD |
GBP/USD |
USD/JPY |
USD/CHF |
USD/CAD |
AUD/USD |
NZD/USD |
For a more in-depth analysis on FX, check out the FX Forecast
