COT: Crowded euro long posing a threat to dollar bears

COT: Metals sold with rising yields posing a threat

COT: Crowded euro long posing a threat to dollar bears

Commitments of Traders report covering speculative positions and changes in FX, bonds and stocks in the week to August 11

Publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

This summary highlights futures positions and changes made by speculators forex, bonds and stocks up until last Tuesday, August 11. A mixed week in terms of market action with another dose of vaccine hopes and better-than-expected economic data supporting a 0.9% rise in the S&P 500 to move within a whisker of its February record.

A 13 bp rise in U.S. 10-year yields and a removal – using Fed Funds futures – of the risk that the Fed will move towards a negative-rate policy, helped trigger profit taking across interest rate sensitive sectors, such as precious metals. The Dollar index rose by 0.3% with a record euro long raising concerns about a correction, not only in forex but also among commodities sensitive to sudden dollar strength.

Speculators increased their short dollar position to a fresh nine-year high in the week to August 11. The net short against ten IMM currency futures and the Dollar Index rose by 12% to $33 billion, the highest reading since May 2011. The rapid pace of selling has resulted in the dollar short position more than doubling during the past five weeks.

However, drilling into the numbers we are not, as opposed to recent weeks, finding broad selling of the Greenback. The vast majority of the short position is due to a continued expansion of the euro long which last week rose 11% to reach a new record of nearly 200,000 lots or €25 billion. Dollar selling was also seen against Sterling where 11,906 lots of buying lifted the net-short to just 2,821 lots, the least bearish in four months. Additional buying of the Swiss Franc increased the net-long to a nine-year high.

The dollar meanwhile was bought against JPY, CAD and AUD as the contraction in yield spreads and weaker commodities supported short covering in the JPY and additional short-selling of CAD and AUD. 

COT: Metals sold with rising yields posing a threat

METALS:

Two weeks of gold and silver selling became three last week when both metals suffered a long overdue correction, triggered by vaccine hopes, better-than-expected US data, a stronger dollar and not least rising real yields. This following a four-week surge where gold rallied by 15% and silver by 57%. The net longs dropped to an eight-week low after speculators cut the gold net-long by 13.5% to 150k lots and the silver by 27% to 23k lots.

The rising volatility in gold futures spreads and the dislocation to spot gold traded in London have been cited as reasons why funds have moved long exposure from COMEX gold futures (tracked in this report) into Exchange-traded funds instead. The continued reduction in net-longs, however are a potential cause for concern from a gold bullish perspective. With the brightest minds shunning both metals despite a catalogue of bullish drivers, it may be time to consider the risk of a prolonged period of consolidation/correction. At least in the short-term while economic data continues to improve, the dollar short looking stretched and the U.S. yield curve show signs of steepening.

We have not changed our long-term bullish view on gold and silver, but also have to accept that the trade, especially through non-leveraged ETF’s, has become very crowded, thereby raising the risk of increased two-way action.

We have not changing our long-term bullish view on gold and silver, but also have to accept that the trade, especially through non-leveraged ETF’s, has become very crowded, thereby raising the risk of increased two-way action.

The elevated HG copper long was reduced for a second week as the metal stopped rallying after finding resistance at $3/lb. The net-long was reduced from a two-year high, this time by 12% to 47.4k lots. 

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Today we look at the ongoing US divergence with the rest of the world, with further strength in the megacaps helped perhaps by a weaker USD as EURUSD is now perched at the top of the range. Tesla saw a massive acceleration yesterday, clearly driven by other factors than the large companies that show high earnings predictability. Also today a look at the USD and the possible FOMO rally for gold

Source: SAXO BANK