Looking at this week’s Commitments of Traders Report, there are many significant changes in speculator positioning across major currencies and commodities. For the second week in a row, speculators reduced their net short positions in the Swiss franc. On the other hand, speculators increased their bearish bets against the Japanese yen and the British pound this week. Lastly, speculators increased their bullish bets on the US dollar (looking at both the US dollar index contract and our implied measure of USD positioning). This week’s significant changes follow many weeks of insignificant changes.

Looking at extremes in positioning, short gold and long US dollar (USD index) remain at bearish and bullish extremes, respectively. Short British pound is at a new bearish extreme based on 12-month trailing averages. Short Australian dollar is also a new bearish extreme, but based on 36-month trailing averages. When the net speculator position is more than two standard deviations smaller or larger than the trailing 12-month or 36-month average, we flag the position as an extreme.

The purpose of this weekly report is to track how the speculator community is positioned across various major currencies and commodities. When net long positions become crowded in either direction, we flag extended positioning as a risk. Crowded positions do not suggest an imminent reversal, but should be considered as a significant risk factor when investing in the same direction as the crowd. This is shown below:

CFTC COT speculator positions (futures & options combined) – September 18, 2018

Source: CFTC, MarketsNow

Notable extremes, significant changes in weekly positions, and large net positions as a proportion of open interest are highlighted in gray above. Extremes in net positions are highlighted when speculator positioning is more than two standard deviations above trailing 1-year and 3-year averages. Weekly changes are highlighted when they are significant as a proportion of open interest. Finally, net positions as a proportion of outstanding interest are highlighted when they are large relative to historical averages. 1-year and 3-year z-scores are visually represented below:

1-year and 3-year z-scores based on net speculator positions

Source: CFTC, MarketsNow

Over the past week, we have seen several counter-trend moves across financial assets. For example, ‘risk on’ assets such as the euro, copper and Chinese equities all made significant gains last week. On the other hand, the US dollar and US Treasury bonds sold off sharply. While speculators typically chase momentum (in the short-term, ‘risk on’ continues to dominate), this was not the case last week. Instead, speculators added to their bets against many ‘risk on’ assets including the euro, the British pound, the Australian dollar and the Canadian dollar.

The big jump in bearish bets against the British pound is particularly notable. While the pound sold off sharply last Friday (following Theresa May’s suggestion that Brexit negotiations were not proceeding well), data for the COT Report was collected last Tuesday (September 18). Thus, traders were betting against the pound even without the latest Brexit negotiation update. Looking at our published trading range from that date, we indicated that GBP/USD was likely to keep strengthening. Nonetheless, most speculators did not wait for the top-end of the range and shorted recent strength in the currency.