Mon, Dec 05, 2022 @ 01:07 GMT
HomeContributorsFundamental AnalysisCommitment of Traders Report (COT): Yen Traders are Increasingly Bullish

Commitment of Traders Report (COT): Yen Traders are Increasingly Bullish

The divergence between market positioning and yen futures pricing continues to widen, with large speculators piling into fresh long bets and dragging net-short exposure lower.

Commitment of traders – as of Tuesday 9th August 2022

  • Net-short exposure to JPY futures fell to its least bearish level since March 2020
  • NZD futures are on the cusp of flipping to net-long exposure
  • Large speculators were their most bearish on AUD futures since March
  • Traders continued to close GBP shorts, sending net-short exposure to its least bearish level since March

Japanese yen (JPY) futures:

There’s an increasing divergence between yen futures prices and market positioning. Whilst the yen remains just off its 24-year low, net-short exposure is at its least bearish level since March 2021. Over 27k gross shorts were closed over the past two weeks, with 8.5k gross longs added. Gross longs are also at their most bullish level since the pandemic. And this suggests that traders do not believe the BOJ will retain their ultra-easy monetary policy for as long as the central bank suggests. But it also means that prices could be too low relative to market positioning, or market positioning has jumped the gun and may need to reverse course. As divergences between prices and market positioning rarely last for too long.

New Zealand dollar (NZD) futures:

NZD futures are on the cusp of flipping to net-long exposure for the first time since April. Admittedly it was only net-long for a single week (and by a mere +365 contracts) but it does at least show the appetite to be short is almost non-existent, with net-short exposure sitting at -276 contracts. Whilst gross shorts have remained around the 16-22k level these past few weeks, gross shorts are climbing slowly to show initiative buying from large speculators. The RBNZ (Reserve Bank of New Zealand) are expected to raise rates by 50-bp on Wednesday, so the key focus will be on their OCR projections which were upwardly revised from 3.5% to 3.9% by mid-2023. Given house prices are falling and growth concerns linger, perhaps we’ll see a dovish hike.

Commitment of traders – as of Tuesday 9th August 2022

  • Large speculators (and managed funds) increased net-long exposure to gold futures for a second week
  • Traders were their least bullish on WTI futures since February 2016
  • Traders flipped to net-long exposure to platinum futures
  • Net-short exposure of managed funds to palladium and platinum futures fell to their least bearish levels May and June respectively

Gold futures:

Large speculators (and manage funds) increased their net-long exposure to gold for a second consecutive week. This means that what began as a short-covering rally now has some initiative buying from institutions, and that adds a little more weigh to a bullish case for gold over the forseeable future. And a supporting feature of the rally has been the lower US dollar, yields and data suggesting that inflation in the US has peaked.

WTI futures:

Large speculators were their least bullish on WTI futures since March 2016 last week. At -43.1k contracts, it was the sharpest weekly fall of net-long exposure in 13-months. Gross longs have fallen to an 11-year low, and gross shorts are also on the rise. Large speculators are net-long by just 210k contracts, and managed funds are net-long by just 149.9k contracts. Against this backdrop we could assumes that any rallies on oil prices are simply part of a correction, as traders remain concerned at demand outlook given expectations of a recession. On the upside, lower oil prices are deflationary.
DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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