Weekly Futures & FX Positioning Report - July 16, 2017

Dollar Sentiment Continues To Deteriorate As The British Pound Breaks Key 1.30 Resistance

●  Large speculators (non-commercials) in Japanese yen futures increase bearish bets for 4th straight week, reaching a new 2-year high.      
●  Euro specs reach all-time net long position vs the US dollar.                                         
●  Canadian dollar makes most significant (bullish) move in sentiment once again as net positioning eyes parity.                                          
●  Crude oil remains volatile, but stabilizes on back of continued gross short reduction.           
●  E-mini S&P 500 futures reaches all-time high as Nasdaq 100 futures nears record highs.                ●  US 10-year futures speculators hesitate ahead of Yellen, then slightly reverse bearish shift.

Yen bearishness (by large speculators) reached a new 2-year high according to the latest CFTC IMM report (as of July 11th).  Bearish bets by (non-commercial) speculators thrusted higher for the 4th straight week, bringing the net contracts total to -112K and the percentage of long positions down to the nearest  (a net)  21% . The number of gross short positions (vs the yen) nearly reached a record high.

This played out while the USD/JPY briefly breached key resistance on Tuesday before reversing lower and subsequently finishing the week down over 1 percent. According to the latest retail trader data (provided by Oanda Corp.), the retail population had been consistently increasing bullish bets (in favor of the Yen) as the Japanese currency declined over the last five weeks. That said, it has appeared that the latest reversal (in price-action) may have shifted retail traders, as (retail) positioning began to turn negative towards the Yen by the end of the week.

While last week's (USD/JPY) rejection at key resistance at 114.36 (May 10th high) highlights a potential (daily chart) ascending triangle pattern or worse a (lower) double top, it is more likely that large speculator's have temporarily exhausted their bearish stance and are merely taking a breather before resuming more downside pressure. If the USD/JPY continues south of 112.34 (38.2% retracement of previous up-trend), however, and the retail population continues to sell Yen, then it appears that large speculators may have substantially exhausted their Yen bearishness.

Speculative short reduction (gross & net) in the Euro remains an on-going theme as the net long tally (83K) broke the June high (79k). Bullish sentiment which had primarily been driven via short-covering now seems to be driven by outright buying. While this is typically a bullish development, the gross long position total has just surpassed mid-April's record high, which could possibly signal exhaustion for Euro bulls. That said, with the British pound breaking out vs the US dollar, and most sentiment metrics trending in favor of further for the EUR/USD, a weekly breakout above the mid-1.14 region would quickly expose the key 1.17 are then potentially 1.20 and above.

Speculative sentiment for the British pound was unchanged on a net percentage basis, but continued to make a push towards net (positions) parity. Gross long contracts gave back most of what had been gained the prior week, which may explain the Pound's 0.68% decline (in the 7/3 to 7/11 period). Subsequent price-action in Sterling, highlights a significant breach of resistance at 1.30 (GBP/USD) as retail traders (Oanda Corp) continue to remain rather skeptical. This continues to bode well for dollar bears while the retail population remains reluctant to follow recent strength in the Pound. Next stop for the GBP/USD could be the mid-1.32 region to the upper-1.34 area, which at that point would exhaust retail sentiment and temporarily stall price-action.

Aussie speculators continue to grow net longs, taking the net long percentage to 75%. This time, however, it was driven primarily in a large drop in gross shorts. It was the first week in a month that saw long positions decline, which may partly explain why the AUD/USD dropped by 0.30% (in the 7/3 to 7/11 period). Speculative bulls look to have continued their run, however, as the Aussie spiked 2.55% in subsequent trade for the week. That said, with large speculator's at already elevated bullish sentiment levels and retail trading potentially have capitulated (in regards to Aussie pessimism), the AUD/USD may encounter some struggle at key resistance at .7835 (April 2016 peak).

Canadian dollar futures have continued to trend higher in both price and sentiment, with net (speculative) longs surging in both in net contracts and percentage for the 8th straight week. Speculative sentiment was nearly in parity (in terms of gross longs vs shorts) before the Loonie surged another 2%. Retail traders, however, continue to be extremely pessimistic, with only 29% of outstanding contracts long. Although, there is plenty of room to go for speculative bulls, there are signs that retail traders are getting close in exhausting their pessimism. This suggest that the USD/CAD is expected to reach the 2016 low just below 1.25, some  consolidation in price-action is anticipated.

Gold bottomed in early part of last week, just before the completion of the latest CFTC IMM report. In spite of bullish sentiment among large speculators reaching fresh cycle lows, Gold futures managed to gain an additional 1% into the weekend. This suggest Gold's technicals and sentiment indicators were oversold and were due for a bounce. Although, Gold futures may have broken the initial downtrend (of the latest bout of weakness), the retail population (according to recent Oanda Corp data) is overly bullish (for gold) and is testing levels not seen since late last year. This suggests that Gold is most likely in the process of forming a base and will have to see speculative demand pick-up and retail traders to start selling for Gold to continue rise,  both of which have not been seen yet. Fortunately, for Gold bulls, US dollar deterioration (in both sentiment & price-action) should provide a tailwind of sorts.

Crude oil price-action was decisively volatile once again. Crude futures dipped over 4% in the 7/3 to 7/11 time frame (covered in the latest CFTC IMM report), then rallied over 3% thereafter. It seems that the continued reduction in gross shorts by speculators is partly to blame for Crude's stabilization. While  Crude oil speculators remain vulnerable to a further gross long reduction with the net percentage (of large speculators) at rather lofty levels (70%), if the US dollar continues to decline and speculative short-covering remains robust, Crude oil futures could recover back towards 50.

E-mini S&P 500 futures reached a fresh all-time high this week as large speculator's gross shorts continued to hover near the low-end of the year. While the short-covering theme stalled this week, it was the jump in gross longs that likely fueled the latest run-up into Friday. This is viewed as a healthy indication for equity bulls and should be reflected in the next CFTC IMM report and price-action going forward.

Nasdaq 100 futures walked back from last week's largest gross short position in over 7 years. Despite the dramatic drop in speculative gross longs, price-action in the Nasdaq has managed to recover back towards all-time highs. The nearly 2% move in the latter part of the week hint that gross longs have potentially bottomed and gross shorts have topped-out, both of which should fuel the Nasdaq to all-time highs. From there, however, the technical reaction will be critical in determining future direction for all stocks as the earnings season gets going.

Despite remaining (net) long, speculators in US 10-year futures have correctly played the latest bearish shift in price-action, by re-upping gross short positions and reducing gross longs over the past few weeks as well as the 7/3 to 7/11 (CFTC IMM report) time frame. That said, the positioning adjustments this week offset each other and the net long percentage remained the same at 59% (net long). This hesitation in sentiment ahead of last week's testimony to the government by Fed chair Janet Yellen was justified by her dovish remarks and highlights a potential base in the US 10-year in the 124.80 region. While, the technical and sentiment outlooks remain murky, if tens fail to recover any further than the 126 region,  then the aforementioned key 124.80 level could quickly be re-tested.

US 30-year futures speculators reduced their net long positions by 16K contracts, dropping the net (long) percentage to 58% from 61%. Gross longs continued to ascend to their highest level since the Financial Crisis in 2008, but were offset largely by a large increase in gross shorts. While speculators have largely been caught on the wrong side of the trade, the latest price-action in US 30-year futures have caused the technical outlook to be as murky as the outlook based on sentiment.

The complete 7.16.17 report with charts