By: Matt Simpson, Market Analyst
Market positioning from the COT report – 21 January 2025:
Traders continued to pile into shorting the British pound last week, with large speculators and asset managers increasing their gross-short by a combined 8.3k contracts and reducing gross-longs by -8.4k contracts. Gross shorts combined are now at their most bearish level in nine months and large specs flipped to net-short exposure for the first time since May. Neither set of traders is at a sentiment extreme. And bears are likely to remain the dominant force as we head towards next week’s BOE meeting, where a 25bp cut has been fully priced in by the overnight index swap market (OIS) and all economists polled by Reuters agree a cut is coming. In fact, they expected 75bp of cuts to arrive this year.
It may not have been by much, but long exposure to US futures were a touch lower last week. And it is not overdue, with net-long exposure for USD against all currencies reaching an 11-year high the week prior and the US dollar index retreating further from its 2-year high. Asset managers, who done a much better job of tracking the dollar’s direction than large speculators, fell for the first time in six weeks. It was by a mere -978 contracts, but take this as a reminder that prices can move in two directions, even during strong bulls markets. Ultimately, data and therefore the Fed’s stance do not warrant a much lower US dollar. But that could change if Trump attacks the strength of the mighty greenback, or somehow gets his way with lower rates from a Fed who clearly have their hands tied with a strong economy.
Large speculators are not shy shorting the Swiss franc, as they pushed net-short exposure up to a 6-month high last week. So they will be glad to hear that the Swiss National Bank (SNB) Chairman hinted at negative interest rates this week, saying that while they don’t like them “we cannot exclude them”.
While net-short exposure is not at a sentiment extreme, gross-short exposure is just -1.5k shy of its record high set in May. So perhaps a sentiment extreme is on the horizon. And that may help explain why asset managers increased their gross-long exposure at the fastest pace in a year by 2.8k contracts last while, while also trimming shorts by -392 contracts.
Still, that may not be good enough a reason to bet against a central bank such as the SNB who tend to get their way. They want a weaker currency, and until Trump attacks the strength of the US dollar it suggests further downside for the Swiss franc.
Bulls have been getting behind key metals markets and prices have been following. Net-long exposure for gold and copper increased for a third week among both sets of traders, whereas large specs increased net-long exposure to silver futures compared with managed funds who increased it for a second.
A slightly weaker US dollar has helped to a degree, but the current environment of tariffs and inflationary uncertainty has also been a major factor. Gold is the clear leader with silver trying to close the gap. Copper is the laggard but could look attractive around current levels over the near-term, even if any rally may be suppressed compared with the former two.
The price lows may not be in yet, but there is clearly concerns that they may be looking at the shift in market positioning among commodity FX. Large speculators and managed funds have trimmed net-short exposure against AUD, CAD and NZD (though managed funds actually increased it against AUD).
In the case of AUD/USD, large specs reduced net-short exposure for the first week in nine. This does not exactly scream a bullish signal, but it does suggest the bearish move of the past four months could be closer to the end than the middle. We’ll need to wait two more weeks before we find out if the RBA do cut rates, but this week’s CPI data certainly makes it a possibility.
The Commitments of Traders, or COT, report is a weekly publication that shows the aggregate holdings of different participants in the US futures market. It provides a snapshot of trading commitments as of Tuesday of that week in order to increase the transparency of exchanges. COT reports are used across markets, so you’ll be able to obtain reports on forex, gold, indices and more.
The Commitments of Traders report is read in tables, in which each row will tell you the market and each column looks at the open interest, long positions and short positions. You’ll also be able to see which actors have taken positions, including dealers, institutions or funds. The COT is a key data source for traders, as it can provide guidance on whether to go long or short on each market.
The COT report is released every Friday at 15:30 Eastern Time on the CFTC website. That’s 20:30 GMT or Saturday at 7:30 AEST. We provide up-to-date coverage of the COT report so that you can get expert analysis each week, as quickly as possible.
-- Written by Matt Simpson, Market Analyst
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