Sunday, August 13, 2017

Weekly Futures & FX Positioning Report - August 13, 2017

Speculators Flock To Safe Havens Amid Geopolitical Tensions; Gold Futures Eye Key Breakout 

The ramp up in rhetoric between the Trump administration and North Korea has caused a flight-to-safety as one would expect. This has triggered a safe-haven rally into Gold futures, US 30-year treasuries and the Japanese yen, according to the latest COT (Commitment of Traders) report (as of August 8th). The most significant move in the FX futures positioning was once again with the Yen, as the percentage of long (futures) positions of speculators improved for the 2nd straight week. This enabled the net percentage (of long positions) to edge higher to 23%, highlighting an improvement off the recent 2-year low.  The number of gross short positions (vs the yen), fell for the 3rd straight week, allowing for the net (position total) to increase by another 16K.

According to retail trader data provided by Oanda Corporation, the retail population continues to fade yen strength, pushing the overall percentage of bulls down to 33%. While this is at the year's low in terms of yen (retail) optimism, the previous two times the percentage reached these levels, the yen managed to grind higher the subsequent few weeks. Moreover, the technicals for the USD/JPY continue to highlight a double top formation in the mid-114 region. A solid break below 108.67 would confirm the bearish pattern and could expose 107.85 (key Fibonacci retracement) before targeting the mid-105 area.

 The net long tally for euro (futures) speculators ticked up after having dropped the previous 2 weeks. Price-action was constructive for the week as the EUR/USD continues to consolidate recent 18-month highs. The gross long position surged, exceeding the recent record high, allowing for the net percentage (65% long) to bump up.

According to the latest data from Oanda, retail traders whom had been previously  unwilling to commit to the euro's recent rise, looked to have finally participated in the euro's end of week rise. This suggests that both the speculator and retail populations are seemingly optimistic towards the euro, which could hint of some choppiness and potentially delay an extension towards the 1.2000 to 1.2140 region (EUR/USD). If, however, the 1.17 handle and/or 20-day moving average support for the EUR/USD is compromised, then it could signal a broader correction for the dollar.

British pound sentiment by large speculators inched up, according the latest COT report, but remains in a fairly steady uptrend towards neutral positioning. Gross long position's were relatively unchanged from the prior week, while gross shorts pulled-back, allowing for the net long percentage to move up to 41%.

According to recent data provided by Oanda Corporation, retail traders pessimism towards Sterling may have stalled as the percentage of longs bumped up to 42% by the end of the week. This development and an overall neutral technical outlook, together hint of additional range trading as the summer vacation period kicks-into high gear.

Australian dollar sentiment vs the greenback has finally turned, highlighting the AUD/USD's recent struggles to clear the psychological 80 cent threshold . According to the latest CFTC data, speculators continue to grow net longs, however, allowing for the net long total to only dip by 2.7K. The large increase in gross shorts was proportionately larger, allowing for the net (long) percentage to fall back from 78% to 73%. With large speculator's at already elevated (bullish sentiment) levels and retail traders (according to Oanda) beginning to buy the aussie, if price-action were to cleanly break below .7835 (AUD/USD), the 76/77 cent region could be the next stop.

Canadian dollar futures speculators continued their recent trends in sentiment, with net (speculative) longs surging in both in net contracts and percentage for the 12th straight week. The USD/CAD, however, has continued to rebound off July's 2-year low, edging up just over a percent.

Retail traders (according to recent data provided by Oanda Corporation) have now begun to buy the Loonie after having sold it over the past few months. Moreover, with the recent trend in speculative sentiment having been one-sided, the USD/CAD could encounter some more corrective price-action until endure additional consolidation until overstretched Canadian dollar bulls are flushed out and refreshed for the next leg higher.

Gold futures sentiment continues to show improvement, as both net positions by total and by percentage ticked up for the 4th straight week. Gold's price-action hints of a potential monthly chart breakout of a 6-year bear trendline amid heightened geopolitical concerns and market volatility.

According to recent Oanda Corporation data, retail traders initially bought gold to start the week but quickly reversed course, allowing for the persistent move down in optimism to reach the lowest levels in 2017 (at 51% net long). If retail traders continue to sell, key resistance in the 1300 region would likely be broken and could expose the key 2016 peak at 1375, especially if risk aversion and market volatility continue to heat up.

Crude oil futures continued short-covering by speculators has allowed price-action to recover back towards the 50 handle . According to the latest COT data, gross long positions dipped along with gross shorts, allowing for the net percentage of longs to remain at 76%. Crude oil's price-action continues to flirt with weekly trendline resistance that has capped since February. If cleanly broken to the topside, Crude futures should extend the recent recovery towards the 52 to 55 region. That said, if gross longs have indeed topped-out and the 47.30 area is taken-out to the downside, then technically the picture has shifted lower and price-action could soon be headed towards the 42 to 45 zone.

E-mini S&P 500 futures have continued to consolidate the recent run-up to all-time high. According to the latest COT data, large speculator's continued to grow more pessimistic as net longs fell slightly for the 2nd straight week. Gross shorts continued to edge higher, highlighting the end of the recent short-covering induced move up in E-mini S&P 500 futures. This coupled with (daily) technical momentum which is now starting to reverse lower, suggests that (S&P 500) price-action looks vulnerable for a deeper correction (lower).

Nasdaq 100 futures speculators covered more (gross) long positions and added more gross shorts, according to the latest COT report. This allowed the net long percentage to fall to 63%, highlighting speculator's increased pessimism as price-action continues to back-off the recent streak of record highs. Moreover, the technical picture looks a bit susceptible as technical momentum has shifted lower as well. The reaction of Nasdaq 100 futures after reaching marginal new highs recently suggests that bulls had exhausted and that (Nasdaq 100 futures) price-action is now in position to re-test the lows seen back in May & July.

US 10-Year futures grinded higher last week on the back of safe-haven flows stemming from heightened geopolitical concerns out of North Korea. According to the most recent CFTC data, speculators added more (gross) long positions than (gross) short positions. Despite this, however, the net long percentage was unchanged, holding steady at 57%. Meanwhile, the technical base that formed in US 10-year futures at 124.80 has continued to buoy price-action since July, and has bond bulls geared for US 10-year futures to re-test the June peak in the mid-127 region once again. This area is technically significant from a larger perspective, because it determines whether the latest 8-month recovery off the key 123 handle is merely a corrective bounce or not.

US 30-year futures speculators renewed their recent run-up in optimism, according to the latest COT report, as bullish sentiment jumped to 61% after dipping to 57% the prior week. Gross longs continued to hover near their highest level since the Financial Crisis in 2008, while gross shorts decreased by roughly 6K. This has enabled the net long position to rise to a new 52-week high as price-action (of US 30-year futures) continue to climb on the back of risk aversion. That said, the recent advance has been choppy and may require another higher low (on the daily charts) to fulfill its quest to re-test the June peak at 157.80.

Full report and charts

Weekly Futures & FX Positioning Report - August 20, 2017

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