Sunday, July 30, 2017

Weekly Futures & FX Positioning Report - July 30, 2017

The US dollar's woes continued, falling across-the-board vs the majors despite an overall improvement in  sentiment, according to the latest COT report (as of July 25th). Despite recent persistent weakness in the greenback, large (non-commercial) speculators have continue to pile into the USD/JPY. The percentage of long (futures) positions of Japanese yen speculators dipped for the 6th straight week, bringing the net percentage to 16%, the lowest level in over 2 years.  The number of gross short positions (vs the yen), however, fell from a record high, allowing for the net (position total) to finally increase.

According to retail trader data provided by Oanda Corporation, the retail population continues to fade yen strength, a promising sign for dollar bears. While resistance at 114.36 (USD/JPY) continues to highlight the top of a triangle pattern or potentially, worse a (lower) double top, the USD/JPY should test 110.00 then possibly 108.00 if risk aversion re-emerges.

Its been a good run for euro bulls as both the currency and sentiment have rallied since early June. That said, the net long tally for speculators actually dropped slightly for the week, despite the EUR/USD's rise to fresh 18-month highs. The gross long position nudged lower off last week's record high, and the net percentage (65% long) is still below the June high of 66%, suggesting a potential ceiling may be developing in euro optimism.

That said, momentum in both price-action and in sentiment is clearly on the euro's side as retail traders remain unwilling to commit to contribute to the euro's recent rise. As such, continued broad dollar weakness could induce a move towards the 1.2140 region (EUR/USD) once overbought technical readings have unwound a bit.

Speculative sentiment for the British pound fell back this week, despite its recent push towards net (positions) parity. Gross long contract's gain were far outpaced by the pick-up in gross shorts, allowing for the net long percentage to fall back to 40%.

The Pound, however, finally made headway last week on the recent breach of resistance at 1.30 (GBP/USD). This may have to do with retail traders (according to recent data provided by Oanda Corporation), who seemingly sold into last week's Sterling's rise. Moreover, while the 20-day moving average continues to support price-action and broad dollar weakness persists, the GBP/USD should test the key 1.3285-1.3500 region.

The Aussie has risen nearly 10% on a trade-weighted basis and has steadily improved in sentiment vs the greenback over the past few weeks. Speculators continue to grow net longs, but the large increase in gross shorts reduced the net long percentage to 77% despite the net total increasing by 5K.

With large speculator's at already elevated (bullish sentiment) levels and the retail traders (Oanda) seemingly on-board with the AUD/USD's rise, its no wonder there has been a struggle at the psychological 80 cent threshold. That said, while price-action remains above .7835 (AUD/USD), look for a test of the mid-.81 region.

Canadian dollar futures continued their recent trend higher in both price and sentiment, with net (speculative) longs surging in both in net contracts and percentage for the 10th straight week. The Loonie inched further below the key 1.25 region (USD/CAD), reaching a fresh 2-year low. Retail traders (according to recent data provided by Oanda Corporation) continue to be extremely pessimistic, with only 25% of outstanding contracts long.

 Although, there is plenty of room to go for speculative bulls, the recent trend has been one-sided and notably, retail traders are at extremes with regards to their pessimism towards the Canadian dollar. This suggest that the USD/CAD could encounter some consolidation until overstretched technicals unwind.  The good news, however, is that the speculative trend remains intact and the Loonie stands to gain while broad dollar weakness continues.
Gold's price-action and (negative) sentiment both bottomed-out in early July. Speculative positioning has trended higher as both gross long & short positions have stalled negative trends. According to recent Oanda Corporation data, retail traders have continued to sell into the recent rally in gold. This and a likely monthly chart breakout of a 6-year bear trendline, suggests that Gold has will likely re-test the key 1300 region before encountering overbought resistance. Fortunately, for Gold bulls, US dollar deterioration (in both sentiment & price-action) should continue to provide an eventual tailwind for Gold futures back towards the 2016 highs in the mid-1300 area.

Crude oil's continued short-covering by speculators has managed to prop-up price-action back towards 50. According to the latest COT data, gross long positions edged higher while gross shorts dropped nearly 20K, lifting the net percentage of longs to 74%. Similar to Gold futures, Crude oil is also probing key trendline resistance. After advancing another 3% plus last week, oil futures are bumping up against a trendline that has capped a series of highs since February. If cleanly broken, Crude's price should re-test the 52 to 54 region in the near-term.

E-mini S&P 500 futures reached another fresh all-time high this week as large speculator's gross longs surged once again. Gross shorts, however, inched up, but continue to hover near the low-end of the year. While the short-covering theme has seemingly stalled as of late, the pace of the pick-up in gross long positions is a healthy indication and should continue to buoy price-action towards 2500 once overbought conditions have unwound.

Nasdaq 100 futures reached another fresh all-time high last week as speculators added to (gross) long positions and covered more (gross) short positions. This has allowed the net long percentage to continue to improve, reaching 65% this week. That said, while sentiment has broadly improved, the technical picture looks a bit cloudy at the moment. Thursday's pullback highlights the overbought condition of not only the Nasdaq 100, but technology stocks as a whole. The reaction of the Nasdaq 100 after reaching marginal new highs suggests that price-action may have exhausted and could be entering a consolidative range or perhaps a correction of some sorts.

Speculators kept buying US 10-year futures according to last week's COT report. Gross long positions increased by roughly the same as gross shorts, however, allowing for the net long percentage to remain at a steady 60%. While this highlights a range in bullish sentiment, the technical base that has formed in the US 10-year at 124.80, could merit a move back towards the mid-June peak in the mid-127 region once 126.37 is cleanly taken-out to the topside.

 US 30-year futures speculators once again did not make signicant moves in sentiment as the net (long) percentage nudged up to 59% from 58% the prior week. Gross longs continued to hover near their highest level since the Financial Crisis in 2008, while gross shorts dipped slightly. The indecisive moves by speculators coupled with range-bound price-action continue to contribute to an unclear outlook which could see more rangebound trade for the rest of the summer.

Complete report with charts


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