USD/JPY, WTI crude oil, gold analysis: COT report

Market positioning from the COT report - as of Tuesday 27 Feb, 2024:

• Net-short exposure to Japanese yen futures reached their most bearish level since November 2017
• Large speculators increased their net-long exposure to WTI crude oil futures by 9.4% and trimmed shorts by -1.9%
• Gross-shorts on Nasdaq 100 futures were increased by 20.2% and longs were trimmed by -1.9%
• Traders also took a more bearish view on silver futures by increasing short exposure by 13.8% and trimming longs by -5.3%
• Large speculators increased long exposure by 21.2% and trimmed shorts by 5.7%
• Net-short exposure among large speculators on Swiss franc futures rose to an 11-week high

JPY/USD (Japanese yen futures) positioning – COT report:

In recent articles I have highlighted the potential for Japanese yen futures to be nearing a sentiment extreme. And last week we say net-short exposure to JPY futures rise to their most bearish level since November 2017. Gross-short exposure is also near a 6.5-year high among large speculators. Looking back through history, net-short exposure doesn’t seem to hang around such extreme levels for long. And that builds a case that we may have seen USD/JPY top out just below 151. Of course, to expect a sharp fall on the pair also likely requires the Fed to signal rate cuts – and I do not expect we’re there just yet. So even if prices do break above 151, I now very much doubt that we’ll see USD/JPY break above the 152 handle, near the intervention highs.

USD/JPY technical analysis:

A bearish engulfing candle formed on Thursday following hawkish comments from a BOJ member. I noted on Friday morning that any moves towards Wednesday’s low or 151 could be desirable for a fade, and so far that has played out well. But perhaps there’ll be another opportunity to fade within that zone for an anticipated move back to the 149.20 support level, with a stop above 151. Should US data continue to soften, then a move towards and below 148 seems more than feasible. Should prices break above 151, I would still be seeking evidence of a swing high beneath the intervention highs / 152 handle.

WTI crude oil (CL) positioning – COT report:

A bullish case for WTI crude oil continues to build. First came the short covering which halted oil’s declines, and now we’re seeing large speculators and managed funds increase their net-long exposure, which is the ideal combination for rising prices. Also note the bullish engulfing week on WTI crude oil’s chart, and a move to $90 or even $100 doesn’t seem so crazy all of a sudden. Who’s ready for another round of inflation?

Gold futures (GC) positioning – COT report:

Gold prices closed at a record high on Friday thanks to weak economic data from the US, which saw gold enjoy its most bullish day of the year. Yet the burst higher on gold was not captured in the positioning data, as the report is only accurate up to Tuesday’s close. Still, large speculators and managed funs have shied away from shorts and we saw a slight tick higher on large bets. We can only image large bets increased considerably on Friday. The weekly chart shows that $2000 provided support and momentum has turned high, and gold prices could extend their gains should any further weak data arrive from the US, as it equates to bets on earlier Fed cuts.

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