US Dollar Bulls Return as Euro and Pound Shorts Build | COT Report

US dollar bulls returned in force last week, with net-long exposure rising by $12.5 billion to $17.3 billion – the fastest weekly increase in seven years. Meanwhile, futures traders increased bearish exposure to both the euro and British pound as the dollar rally gathered momentum.

US Dollar Longs Surge as Euro and Pound Positioning Turns Bearish

Large Speculator Positioning from the COT report

Source: CFTC (COT), LSEG

• US Dollar: Net-longs rose at their fastest weekly pace in seven years by $12.5 billion to $17.3 billion
• EUR/USD: Asset managers reduced net-longs by 35k contracts and large specs increased net-shorts by 25k contracts
• GBP/USD: Net-shorts increased a combined 50.5k contracts to mark their fastest weekly rise in three months
• USD/JPY: Traders remained net-long by a combined 113k, despite a reduction of around 58k contracts last week
• USD/CHF: Only minor adjustments kept net-short exposure to the Swiss franc by a combined 62.2k contracts
• USD/CAD: Prices continued to fall at a faster pace than net-shorts increased, suggesting the late surge of gross-longs have since been forced to cover
• AUD/USD: Open interest fell at the fastest weekly pace on record, though net-short exposure only increased marginally
• NZD/USD: Large specs and Asset managers reverted to net-short exposure

Asset Manager Positioning | COT Report

Source: CFTC (COT), LSEG

FX Futures Positioning | COT Report (IMM Data)

US Dollar Index (DXY) Futures Positioning | COT Report

We saw a strong influx of bullish bets on the US dollar last week, with net-long exposure rising by $12.5 billion to $17.3 billion – the fastest weekly increase in seven years. And I suspect we’ll see a further increase by the time the next COT report drops, given DXY was only up 0.4% by Tuesday’s close – and went on to rise a further 0.8% by Thursday’s high.

The US dollar index has now rallied 2.6% in 11 days, so I do not think Friday’s pullback is enough to call an end to this rally. Especially since neither the US dollar index nor net-long exposure is near a sentiment extreme.

Traders have a plethora of Fed members speaking this week, alongside ISM, NFP and PCE inflation. My guess at this stage is that they will show a strong economy with inflationary pressures, which leaves little room for Fed members to be any less hawkish than they have been since their last hike.

Source: CFTC (COT), ICE, LSEG

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EUR/USD Futures Positioning | COT Report

My assumption over the past few months that the euro had bottomed is on the brink of being invalidated. But with momentum moving aggressively towards those swing lows, we may not need to wait for the break to invalidate it. The way prices move to or from a level can sometimes be just as, or even more, important than the level itself.

Net-short exposure to EUR/USD futures rose to a five-week high among large speculators, nearly doubling after increasing by 25k contracts over the week. Asset managers reduced net-longs by 35k, resulting in an effective combined shift of around 60k contracts towards a more bearish euro position.

Source: CFTC (COT), CME, LSEG

GBP/USD Futures Positioning | COT Report

It appears the British pound wants to head for its range lows around 1.3150, judging by how bearish momentum is accelerating towards the June low. Gross shorts have been trending higher for a couple of years, yet interestingly, net-short exposure is not flashing an imminent sentiment-extreme warning. The US dollar remains in the driving seat, though diminishing odds of a BOE hike could also decide how quickly GBP/USD breaks that June low – if it takes that route.

Source: CFTC (COT), CME, LSEG

USD/JPY Futures Positioning | COT Report

I stand by my long-held assumption that we saw the low for the Japanese yen this year back in June. While it retraced lower for a second week, a bullish hammer formed on the weekly chart, suggesting the yen is trying to form a swing low.

While large speculators and asset managers trimmed gross longs, they’re not exactly in a rush to short this market after several rounds of intervention. Both sets of traders remain net-long, which supports my ‘buy the dip’ bias for the yen and translates into a ‘fade the rally’ bias for USD/JPY.

Source: CFTC (COT), CME, LSEG