Weekly COT Report Yen Traders Flip To Net Short

As of Tuesday 15^th October:

Traders increased net-long exposure on USD by $2.1 billion to $20.4 billion, their most bullish stance in 17 weeks (up $2.1 billion to $23.3 billion against G10)
Large speculators flipped to net short on the Japanese yen
The largest weekly change among FX majors was the yen, which saw traders close -6.4k long and add +11.3k short contracts
The commodity FX divergence continues, with traders adding to CAD long exposure and increasing net-short exposure to AUD and NZD

DXY: Large speculators reduced net-log exposure on the US dollar index for two consecutive weeks up to last Tuesday. And that was ahead of its -1.2% decline and worst week in 17. Furthermore, its endured its worst 12-week rolling period since August 2018. Still, it remains in a wider, bullish channel so support may be found around 97 next week. Interestingly bears also reduced exposure for the past two weeks so the decline has been seen on lower open interest (volume).

JPY: Traders flipped to net-short for the first time in 11 weeks, further underscoring the risk-on vibe market have enjoyed of late. It appears the cycle peak for net positioning was in late August and, if previous cycles are anything to go by, perhaps traders could push this further into net-short territory over the coming 2-3 months (Santa’s rally anyone?).

CAD: Net-long exposure was cautiously higher, although we have Canadian elections on Monday to factor in. Read Matt Weller’s take on the razor-thin Canadian election. Fundamentally, Canada is in a strong position with record low employment and being just one of two leading economies to not have growth outlook lowered by IMF. Once the election noise is out of the way a case can be made for a stronger Loonie. Market positioning is far from stretched and its possible we’ve seen a cycle low on the Net-long index. Therefore, I’m sticking to my personal view that we’ve seen a major top on USD/CAD.

As of Tuesday 15^th October:

Net-long exposure to gold and silver hit a 12-week and 8-week low, respectively
Exposure to WTI was little changed, although both long and short contracts were added
Traders reduced net-long exposure to Palladium slightly whilst prices closed to a new record high
Large speculators have the highest short exposure to the VIX in 5-months

Gold: et-long exposure to gold was trimmed by -22.5k contracts. Over the past 12-weeks, the average change is a mere +128 contracts, which may explain why prices are struggling to push higher. Gross longs have increased by +7.5k contracts and for a 2^nd consecutive week, so my view remains consistent with last week; expect choppy trading for the foreseeable future.

VIX: Traders are shorting the VIX at the highest level since May which. Incidentally short exposure was at a record high in May, just ahead of the VIX spiking higher. Still, this serves as a warning only as VIX typically slows lower for longer periods before spiking higher, then mean reverting quickly. But then again, with equities trading just below their record highs, then perhaps we should be on guard for a correction and VIX as a result.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.