Seven Observations about Commitment of Traders in FX
The Commodity Futures Trading Commission requires futures traders to identify whether they have an underlying business interest (commercials) or if they don’t (non-commercials). Commercial positions are thought to be banks or businesses hedging. Non-commercials accounts are understood as a proxy for speculators.
Market participants tend to focus what non-commercial account are doing. It is seen to be discretionary and the positioning containing information about expected direction. The report is generally released on Friday afternoons and it cover the period through the previous Tuesday.
Here are seven take-aways from the most recent report that covered the week through January 17th.
- The net (long minus short positions) non-commercial (speculative) euro positions was a record short at 160k contracts. It was the fourth consecutive week that the net short speculative position increased. However, the subsequent price action, including the euro moving above its 20-day moving average in the spot market for the first time since late October suggests that the streak ended.
- Speculators have been long yen for more seven months. Although the long position was trimmed a touch (58.9k contracts from 59.7k), it is the third week the net speculative position has been above 50k, which is the first time since March 2008 of such a streak.
- The net speculative sterling position, short 41.6k contracts, would seem to cast doubt on the extent that sterling is seen as a safe haven. Only briefly since last May has the net speculative position been long sterling. It has been short now since September and the net short position in the largest since the first half of December.
- The net speculative Canadian dollar position is as short as it has been since April 2007. The 28.7k contracts short as of January 17th is only about 100 contracts more than the previous week. This may be a bit surprising in the sense that the Canadian dollar is thought to benefit from the relative strength of the US economy, especially the manufacturing sector, healthy start of the year for equities, and rise in oil prices.
- The net long speculative Australian dollar position rose for the fourth consecutive week. At 54.3k it is the largest net long position since June. While the Canadian dollar is net-net little changed since January 17th, the Australian dollar is a cent stronger. It should not be surprising to see the net long position increase in next week’s report. That said, some of the positions may have been in a cross against the euro, making the recovery of the euro, potentially of greater influence.
- The speculative market continues to reduce a large net short Mexican peso position. In the week through January 17th, the net short position was trimmed from 22.3k to 17.3k, which is the smallest net short position since mid-November. Since January 17th the peso has been among the strong currencies in the spot market. It has gained about 1.95% against the dollar. The Swedish krona is the only G10 currency to outperform it since January 17th. Among emerging market currencies, only the currencies of Hungary, Czech and Poland (lifted in part by the euro’s recovery) did better than the peso during the second half of last week. The continued rise in the peso suggest the net speculative position may be on the verge of shifting.
- Lastly, and perhaps most importantly, remember for every futures contract there is a buyer and seller. If the non-commercials are net short, that means that the commercials are net long (barring the unreported contracts). For example, while the net speculative position at the IMM is short euros, the net commercial position is net long euros. As of January 17th, the net commercial position was long 180k contracts. Assuming that the commercials are largely banks (futures contracts, which in effect are standardized forward contracts, tend not to be ideal for corporations trying to get favorable accounting treatment of their hedge, for example), then it would appear that they (the banks) are absorbing the euros that the speculators are selling. This dovetails with the recent flow of funds report suggesting US banks have increased their euro exposure.