Speculative Positioning in the Currency Futures

Sentiment has swung back in favor of the dollar. The price action has forced many non-believers to take seriously the possibility that interest rates do ultimately matter and the perceived desire of the Trump Administration does not stand in the way of a stronger dollar.

Speculative market positioning is slower to change, and that is what the CFTC data released before the weekend showed. We review the Commitment of Traders report here, drawing from Bloomberg's time series. The data covers the period through April 27.

Euro: The speculative net long euro position fell 20.9k contracts to 130.6k. It was a record high the previous week. The net position is the difference between the gross long and gross short positions. The first reaction is for the longs to be peeled. The gross long position fell by near 22k contracts to 216.9k, which is a low for 2018. It reached a record high of 262k contracts in late January. The gross short position actually fell by 1k contracts. At 86.4k contracts, the gross short position has not been this small since June 2017, which itself was the least since 2014.

Yen: Speculators have been net long yen in the futures market all month. It is the first time since November 2016. However, the net longs were trimmed in the most recent period, by 2k contracts to stand at less than 600 contracts. The gross longs were not cut. In fact, the bulls added nearly 10k contracts to the gross long position and at 59.3k contracts is the largest since last October. The gross shorts had fallen to 44.8k contracts in early April, the smallest in around a year and a half. It jumped by 11.8k contracts in the latest period to 58.6k contracts.

Sterling: The net speculative long sterling position was pared after reaching its highest level since July 2014. It as cut by 10.3k contracts to stand at 37.4k. This understates the liquidation of the gross long contracts. The bulls let 23.1k contracts go, the most this year, of what had been the largest gross long position since 2007 of 113.7k contracts. The bears covered 12.7k previously sold sterling futures positions, leaving them with 52.8k contracts.

Swiss Franc: Speculative interest in the Swiss franc has increased of late. The net position is short 10k contracts, and it has been short with a handful of exceptions since Q4 16. However, the gross positions are relatively large. The gross long position edged 4.4k contracts higher to 29.4k. In recent years, it has rarely been above 30k. The gross short position increased by 4.1k contracts to 39.6k. It has rarely been above 40k contracts. The increased speculative activity could signal tighter pricing than sometimes has been the case.

Canadian Dollar: Speculators in the futures have been net short the Canadian dollar since late March. It is the first time since last July. The net short position of 25.1k contracts, though, is the smallest net short position since the switch was made. The short positions were covered faster than the long positions were liquidated. The bears covered 10.2k short contracts, leaving them with 48.7k contracts. Since July 2016, the gross short position has not exceeded 60k contracts. The bulls liquidated 5k contracts, giving them a gross long position of 23.6k contracts, which is the smallest since late 2016. It had been near 80k as recently as mid-March.

Australian Dollar: Both bulls and bears felt strongly in the last reporting period. The bulls added 19.7k contracts to lift the gross long position to 49.6k contracts. It is the largest weekly increase in three years. The bears added 13k contracts to the gross short position. It stood at 53.0k contracts as of April 24. The gross short has averaged 37k-38k over the past 52 and 104 weeks. The gross adjustments led to a 3.4k contract reduction in the net short speculative position to 10.2k contracts. The net position has rarely moved out of a +/- 10k contract range this year.

New Zealand Dollar: Unlike in the Aussie, speculators in the futures market were net long New Zealand dollars. They were pared by 3.2k contracts to stand at 24.4k. Speculators pared back what appears to be a record (or at least since 2003) gross long Kiwi position. They liquidated 7.3k contracts, leaving a gross long position of almost 40k contracts. The gross short position as trimmed by 4.2k contracts to 15.5k.

Mexican Peso: Despite NAFTA uncertainties and national elections in nearly two months, speculators continue to favor the peso. The net long position of 88.8k contracts, 5k smaller over the past week, is at the upper end of the recent holdings. The gross long position was slimmed by nearly 15k contracts from its highest level since 2013 to 140.7k contracts. The gross short position was shaved by 1.8k contracts, and at 52.0k, it is still one of the largest of the year.