A snapshot view of speculative positioning on FX futures from the weekly COTS report and analysis of related markets.

  • JPY gross shorts at their highest levels since January
  • Only minor adjustments on US Dollar Index positioning, which keeps net positioning marginally long by 5.3k contracts.
  • EUR very close to breaking to its most net long status since 2011
  • AUD gross longs increased by 8.7k contracts to bring the net long positing to its highest level in 8-weeks.
  • JPY sort interest surges and appears read to confirma double top pattern

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DXY: Positioning on DXY was mostly unchanged, which keeps the index only marginally net long by 5.8k contracts. That said, we also note a slight up-tick for both longs and short, although not by enough to be confident of a bullish or bearish move room here. Technically DXY remains on the ropes and last week’s bullish inside week provides little confidence of a base. 96.32 remains an important resistant level as it will likely tempt bears to fade into a rally whilst beneath it. And whilst we remain below the 97.87 swing high then trend remains technically bearish. A break below 95 assumes a run down to 94.08 and could help AUD run for the 2016 high.

EUR: Bulls are on the cusp of being the most net-long since 2011. The trend of gross longs continues to point higher and bearish interest is starting to curl lower. This divergent pattern among bulls and bears with the bullish price action is the ideal scenario for a healthy, bullish trend. Last week provided a bearish inside week and hammer to warn of potential weakness on the near-term, yet as long as we remain above 113 then a move higher is still the preferred bias. We could be at 116 within a couple of weeks at this rate, and a break lower on DXY will only make this happen sooner. If we are to break beneath 113 then 112 and 1.118 become the next levels of support yet this outcome appears quite unlikely for now.

JPY: JPY futures are on the cusp of confirming a double top pattern which, if successful, assumes an initial target at 8.233. We have been awaiting this turn of events on JPY for the most part of this year and price action and behaviour of bulls and bears are now making this outcome materialise. The surge in bearish interest is a promising sign that USDJPY will move beyond the 114.38 target we called in mid June.

AUD: The neckline projected from the 2016 high will remain an important level of resistance, although a break above it is likely to see resistance then be found at 0.78 and the 2016 high of 0.7818. It will require a break above here to truly confirm a bullish resumption and 80c will then be within site. The move higher for gross longs is promising, as it was the ingredient missing from a sustainable bullish run. Up until this point we argued the move higher on AUD was fuelled mainly by a weaker Greenback. However, that AUD then declined following the report of last Tuesday also undermines this a little. The week provided a bearish inside candle below resistance to warn of near-term weakness and a break beneath its low assumes a return to 0.75. If S data picks up this week, it may provide short covering on the US Dollar and add further pressure onto AUD.

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