USD, GBP/USD, Gold, Crude Oil Analysis: COT report

Market positioning from the COT report - as of Tuesday June 4, 2024:

• Futures traders reduced net-long exposure to the USD by -$4.4 billion according to the IMM (International Money Market)
• Net-long exposure to USD index futures increased for a sixth week and reached a 12-week high among large speculators
• Yet their net-long exposure to EUR/USD rose for a fifth week to a 12-week high
• Large speculators were their most bullish in 11-week to GBP/USD futures after flipping to net-long exposure three weeks ago
• They were also net-long NZD/USD futures for a second week, at their most bullish level in 14-months
• Net-short exposure to CAD futures rose to a 7-year high ahead of the BOC’s rate cut last week
• Net-short exposure to CHF futures rose to within 2k contracts of a record high, although comments from the SNB (Swiss National Bank) may have shaken some of these bears out of their trades
• Large speculators increased gross shorts to WTI crude oil by 22k contracts (21.9%) and managed funds increased by 27.2 contracts (73.1%)
• Open interest to gold futures fell at the fastest 2-week pace since March 2020

US dollar positioning (IMM data) – COT report:

Futures traders reduced net-long exposure to the US dollar for a sixth week, which has seen -$22 billion of bullish bets in aggregate to the USD wiped out over this period. Net-long exposure to the USD against G10 FX was also lower for a sixth week.

Yet if we look at the US dollar index, large speculators actually increased their net-long exposure for a sixth week yet remain at relatively low levels (and therefore not at a sentiment extreme). Asset managers remain heavily net long but at a lower pace, and with a hot NFP report in hand and reduced bets of a September cut from the Fed, I doubt either set of traders will be reverting to net-short any time soon.

Last week’s bullish hammer on the USD index also suggests a swing low may have formed. If so, that may be a bad omen for risk appetite in general over the coming weeks.

GBP/USD (British pound futures) positioning – COT report:

Questions remains surrounding the timing of the BOE’s first cut and how may they’ll manage this year, after strong inflation data killed already lower hopes of a June cut. Net-long exposure among large speculators rose to a 9-week high, although asset managers remain net short (albeit at their least bearish level in 38 weeks). Yet both sets of traders have continued to close longs and initiate new longs, and that has helped GBP/USD withstand the resurgence of USD strength. And until we see a divergent theme between the BOE and Fed, GBP/USD may be best to seek opportunities on lower timeframes as large swing on the daily chart seem less likely.

WTI crude oil (CL) positioning – COT report:

Managed funds and large speculators shed longs and increased shorts last week to send net-long exposure lower. Managed funds increased shorts by 27.2k contracts (73%) and large specs by 22.1k contracts (21.9%). This data represents positioning after OPEC’s decision to extend their oil production cuts, which could either be because they expected the oil cartel to do more to support prices, demand expectations are under pressure from a slowing economy, or both.

However, WTI crude has fallen -16.6% over the past nine weeks before some losses were recovered at the end of last week to close with a small bullish hammer candle on the weekly chart. Whilst crude oil may lack a compelling bullish case, I am also questioning its downside potential and suspect prices want to remain within the $70 range.

Gold futures (GC) positioning – COT report:

Open interest to gold futures fell for a second consecutive week. And the -83.1k contracts closed over the two week period being its fastest culling since March 2020 when risk began its liquidity-induced rally. Net-long exposure remained elevated yet flat among large speculators and managed funds, although both sets of traders trimmed longs and shorts. And that sums gold up nicely; hesitant to go higher yet its downside could also be limited due to supportive fundamentals.

S&P 500 futures (ES), Dow Jones (DJ), Nasdaq 100 (NQ) positioning – COT report:

Net-long exposure to all three major US indices declined for the first week in seven last week. It was the third week lower for Dow Jones futures, the second for Nasdaq 100 and the first for the S&P 500 in five weeks. And this again underscores that the Dow remains the favoured short during bad times and worst long during good.

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