US dollar, EUR/USD, gold, crude oil analysis: COT report

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Market positioning from the COT report - as of Tuesday April 2, 2024:

Large speculators were net-short USD index futures for a second week
Net-long exposure to EUR/USD futures fell to a 19-month low
Large speculators pushed net-short exposure to JPY futures rose to the most bearish level since December 2013
Gross shorts against CAD futures rose to the most bearish level in nearly 7 years, pushing net-short exposure to a 4-month high
A slight reduction of gross shorts saw net-short exposure to AUD/USD futures retrace -2.7k contracts from its record high
Large speculators were net-short NZD futures for a third week, and at their most bearish level in 16 weeks
Asset managers trimmed net-long exposure slightly to Dow Jones, S&P 500 and Nasdaq 100 futures
Managed funds increased net-long exposure to gold futures to a 2-year high
Large speculators were their most bullish on silver futures since January 2021
Net-long exposure to WTI crude oil futures rose to 6-month high

US dollar positioning (IMM data) – COT report:

It is not often we see such notable divergences between asset managers and large speculators, but we’re seeing one now on US dollar index futures. Net-long exposure among asset managers has risen to a 19-week high, yet large speculators were net-short for a second week and at their most bearish level since March 2021.

So which group is correct? I’m probably siding with asset managers given the potential for the Fed to not be allowed to easy 2-3 times this year. If so, large speculators may be forced to cover and further support USD index future.

EUR/USD (Euro dollar futures) positioning – COT report:

Renewed bets that the ECB could cuts as soon as June and before the Fed has continued to weigh on bullish exposure to EUR/USD futures early last week. Large speculators are their least bullish since September 2022 – when they were last net-short. Asset managers have also been increasing their gross-short exposure to drag net-long exposure to an 18-month low.

Dow Jones, Nasdaq 100, S&P 500 futures positioning – COT report:

In recent weeks I have noted the divergences between rising US indices and net-long exposure among asset managers. Now that we have seen some bearish volatility around the cycle highs, these divergences carry more significance towards a bear case.

In percentage terms, it was the worst week for the Dow Jones futures market in one year. And looking back through recent history bearish engulfing weeks tend to be followed by a further retracement over the coming weeks. And with US economic data continuing to outperform and the likelihood that the Fed won’t be easing much this year, along side the fact that US indices have not realty seen a retracement since last July, then perhaps a correction could be due.

Gold futures (GC) positioning – COT report:

The bullish rally on gold continues to unfold, yet remarkably net-long exposure among large speculators and manage funds is not at a sentiment extreme by historical standards. It could be argued that is at or near an extreme by recent standards, given the glass ceiling ~200k (large specs) or ~150k (manage funds), but with prices rising at such velocity it suggests many remain on the sidelines and are just watching gold rise in awe.

WTI crude oil (CL) positioning – COT report:

Market positioning to WTI crude oil displays the characteristics of a healthy bullish trend; very low levels of short interest with rising gross long exposure, which is pushing net-long exposure higher in tandem with prices. Clearly, this could be bad news for consumers at the pump and of course brings the risks of another round of inflation. In turn, this keeps the hawkish pressure on central banks and their respective interest rates.

But with net-long exposure nowhere near a sentiment extreme and healthy positioning to support higher prices, a rise to $100 cannot be ruled out. And that keeps crude oil on a ‘buy the dip’ watchlist for the foreseeable future.

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