Currency Spec Load Up Long the Commodity Currencies

COT (Commitment of Traders) COT Report, 18 September 2012. Mention quantitative easing and currency speculators behave like wild packs of Pavlov’s dogs, rushing to get loaded on the long side of the commodity currencies.

The total spec long in the Canadian, Australian, and New Zealand Dollar soared to 239,375 contracts as cited in the most recent reports. By far the biggest position is in the loonie, which may be overstated since the final liquidation of the September futures contract does not occur until the day after the COT report is finalized.

The cut-off date for this report was one day before Bernanke made the ‘QE forever’ announcement, or at least until the unemployment comes down to an appropriate level.

If we combine the net position of these currencies with the other we review, the aggregate net position is short the USD by 179, 452 contracts. This is an increase from 94,712 USD shorts in the previous week.

The big short in the euro continues to be reduced in an orderly fashion. Since the euro versus the USD has rallied about 1000 points, it is amazing there are any shorts left in the euro. That position is now down to less than 95K, and the big short in the related SF is now less than 2K.

One of the biggest changes for the week was in the British pound. Their specs ran their long position up to 35.6K.  The appeal of the pound eludes me.

  • US Dollar Index: The expiration of the September contract resulted in a reduction of the OI by 31,577 contracts. Almost all of the reduction was specs reducing their long position from 35.3K to a net long of only 5K. This market continues to be dominated by the large specs, but their net long has shrunk to less than 5K contracts.
  • Euro (EUR/USD): Despite the sharp appreciation in the euro in recent weeks there has yet to be panic liquidation. Granted, the short position is reduced every week, but in a measured way. Last week, the total reduction in the euro short position was about 23.2K. Small specs are approaching an even position, but the large specs remain a 2.6 ratio short. Spreading, which mostly represents the option trade, remain high, at 10.1% of the total market.
  • British Pound Sterling (GBP/USD): Currency specs have quickly built their biggest pound long position, 35,396 contracts, since they had a 46,669 long position in the May 15th 2012 report. In the latest report, the small spec is now better than a 2 ratio long. The large spec increased their net longs by covering almost 16K of their short positions. The total OI has grown about 50K contracts in the last month in large part because of spec buying.
  • Japanese Yen (JPY/USD): The large spec remains bullish on the yen, long 17.2K contracts, and the small specs remain short, about 11K contracts. Briefly, the yen weakened versus the USD when the BOJ announced their plans, but that break did not last long. Trade in the yen is dull.
  • Swiss Franc (CHF/USD): There was big liquidation in this small market, taking the total OI down to less than 40K. Large specs are modest shorts, disagreeing with the small specs which are long.
  • Canadian Dollar (CAD/USD): Liquidation of the September futures in the C$ does not take place until after the cut-off for the COT report. Consequently, the OI is bloated with, I guess, a lot of cash exchanges, or pricing orders yet to be finalized.  Even with that qualification, however the C$ is loaded with spec longs. The total net long position tallies to 138.3K. Large specs are better than a 10 to 1 long, and the small specs are a 2 ratio long.
  • New Zealand Dollar (NZD/USD): Despite liquidation of the September contract, the OI went up 2.1K contracts. This was caused primarily by the big specs increasing their long to a 5.4 ratio. Small specs are also a 2.7 ratio long. The total net spec long in the kiwi is up to 19.6K.

Australian Dollar (AUD/USD): With expiration the OI went down 53.5K but almost all of the liquidation was done by the commercials reducing both longs and shorts. The total spec net long increased to almost 80.5K contracts. Large specs are long by a 2.5 ratio. Commodity currencies remain extremely popular.

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