Yen Bulls Loaded Up into BOJ as Euro Shorts Hit 11-Year Extreme| COT report

Yen bulls loaded up ahead of Friday's BOJ meeting, and perhaps their conviction was justified by the central bank's subsequent inflation upgrades. While the BOJ held rates steady, its hawkish outlook leaves the door open for further tightening. Meanwhile, euro shorts reached an 11-year extreme despite EUR/USD holding above its May low, raising the risk of a short squeeze. US dollar bulls also remained firmly positioned ahead of the Fed meeting, with little evidence of a significant change in sentiment following its decision.

Yen Buying Accelerated Ahead of BOJ as Euro Bears Doubled Down

Large Speculator Positioning from the COT report

Source: CFTC (COT), LSEG

• US Dollar: Bulls retained $37.4 billion in net-long exposure ahead of the Fed meeting. The subsequent pullback has been shallow, suggesting bullish sentiment remains intact for now.
• Japanese Yen: Bulls loaded up ahead of Friday's BOJ meeting, with net-longs surging by 31.7k contracts. The BOJ's subsequent inflation upgrades may justify their conviction, despite its decision to hold rates.
• Euro: Net-shorts reached an 11-year extreme, while gross shorts hit a record high. Yet EUR/USD continues to hold above its May low (1.1074), leaving the market vulnerable to a short squeeze unless support breaks.
• Australian Dollar: Bears remain heavily positioned against AUD/USD, yet a failed breakdown below 70c suggests they are struggling to gain traction. That divergence could become interesting around Tuesday's RBA meeting.
• New Zealand Dollar: NZD/USD formed a bearish engulfing candle following the RBNZ's surprise hold, bringing price action back into line with heavily bearish futures positioning.
• Canadian Dollar: CAD futures rallied for a third week as large speculators reduced net-shorts. Asset managers were also covering shorts, although leveraged funds remained firmly bearish.
• British Pound and Swiss Franc: Positioning changes were relatively modest, although leveraged funds trimmed bullish GBP exposure and CHF gross longs continued to retreat from their nine-year high.
• Gold: Large speculators reduced net-long exposure for a seventh consecutive week, although managed money remains more resilient. Gold's break below $3,900 suggests further liquidation remains a risk.
• Silver: Net-long exposure fell to its lowest level since February 2024, while a sharp rise in gross shorts suggests bears are actively positioning for further downside.

Asset Manager Positioning | COT Report

Source: CFTC (COT), LSEG

FX Futures Positioning | COT Report (IMM Data)

US Dollar Index (DXY) Futures Positioning | COT Report

While net-long exposure was trimmed slightly by $1.8 billion heading into the Fed decision, traders remained firmly bullish overall, with net exposure of $37.4 billion. Still, the Fed was not quite as hawkish as some had hoped, which resulted in a minor pullback on Thursday. But that pullback was not deep enough to suggest a significant change in bullish USD exposure in the futures market. Moreover, large speculators and asset managers remained net-long by a combined 20.8k contracts in DXY futures.

The chart shows the US dollar index retraced lower for three days, although the third day formed a rickshaw man doji which closed back above its 20-day EMA. So bulls are holding firm for now. A break below the 101.50 area, near last week's low, would bring the 50-day EMA and 101 handle into focus. But the trend structure remains bullish enough for the pullback to remain shallow for now, unless ISM and NFP data come in weak and allow traders to significantly reprice Fed hike expectations.

Source: CFTC (COT), ICE, LSEG

Yen Bulls Loaded Up Ahead of BOJ

Yen bulls loaded up ahead of Friday's BOJ meeting, with large speculators increasing net-longs by 31.7k contracts, predominantly through fresh buying rather than short covering. Asset managers also increased net-longs to a fresh 52-week high of 91.2k contracts.

And perhaps their conviction was justified. While the BOJ held rates at 1.25%, it upgraded its core CPI projection for fiscal 2027 to 2.6% from 2.4%, while one board member voted for an immediate hike. The BOJ may have paused, but it has not finished tightening. And with US Treasury yields retreating, the case for further yen strength remains.

The daily USD/JPY chart remains beneath a cluster of moving averages, although a long-legged doji suggests bulls may have another crack higher. However, with weekly yen futures hinting at a swing low, USD/JPY may have topped out for now.

Source: CFTC (COT), CME, LSEG

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EUR/USD Shorts Reach Another Extreme, but Squeeze Risks Remain

Euro bears added another 9.4k net-short contracts last week, taking their exposure to a fresh 11-year extreme of 143.9k contracts. Gross shorts also reached a new high of 374.5k contracts.

That continues the bearish trend we've seen develop over recent weeks. Since late September, large speculators have increased their net-short exposure by over 80k contracts.

Yet as I noted last week, the euro's ability to hold around its May low despite increasingly bearish positioning is worth watching.

With so many traders already positioned for weakness, the risk of a short-covering rally continues to build. A sustained break of support would favour bears, but if EUR/USD continues to resist further losses, even a modest pullback in the US dollar could be enough to shake out some of these shorts.

With that said, a break of the May low (1.1074) paves the way for the next leg lower. Note that daily chart is showing the 20-day EMA capping as resistance and a potential lower high formed on Friday in the form of a wide-legged doji.

Source: CFTC (COT), CME, LSEG

AUD/USD Holds Above 70c as NZD/USD Weakens and CAD Firms

Only minor adjustments were made to futures positioning ahead of last week's busy central bank calendar, leaving subsequent price action to provide more clues than pre-emptive exposure. AUD/USD futures traders remained heavily net-short by a combined 225k contracts. Yet the pair traded within a relatively narrow weekly range at elevated levels, and managed to reclaim 70 cents following a failed breakdown.

NZD/USD formed a bearish engulfing candle, bringing price action back into line with combined net-short exposure of 114.7k contracts. Canadian dollar futures rallied for a third consecutive week, consistent with the slight reduction in net-shorts among large speculators – and raising the possibility that asset managers had flipped to net-long exposure by Friday's close.

Source: CFTC (COT), CME, LSEG

Gold Bulls Retreat as Silver Bears Ramp Up Shorts

Gold futures saw a seventh consecutive week of net-long liquidation among large speculators, with exposure falling by 13.4k to 186.5k contracts. Interestingly, managed money increased net-longs slightly, suggesting not all bullish traders were heading for the exits.

Silver positioning looks more bearish, with large speculator net-longs falling to their lowest level since February 2024. More concerning is the sharp rise in gross shorts, suggesting bears are actively betting on further downside rather than simply relying on long liquidation.

Both metals subsequently came under selling pressure on Friday, with gold breaking below $3,900 and silver falling beneath $50. While the near-term bias remains bearish, the substantial reduction in bullish exposure could eventually help form a sentiment extreme. However, silver's rising shorts suggest bears are not done yet.

Source: COMEX, CME, CFTC (COT), LSEG