Speculative Positioning

The latest commitment of traders, reported late Friday for the week through Nov 17th showed that speculators (non-commercials) had pared back their bets. Given that interest rate differentials remain decidedly dollar negative, sentiment poor and some ideas that the U.S. may be forced to extend either its credit easing or its fiscal stimulus longer than Europe, the pared back positions may clear decks sufficiently to fuel a year end dollar slump short-term players re-establish positions.

This seems particularly true of the euro where the net speculative long position was cut in half to about 12k contracts. The net long euro position peaked in early Oct near 51k contacts as of last Tuesday was the smallest net long position since early Sept. Given that was little changed in the second half of last week and a review of volume and open interest, the net exposure probably did not change much. A move above last week's high near $1.5016 may force more players to chase the market. There is some talk that the large option structure that "bet" euro would stay between $1.48 and $1.51 may have expired last week, but other contacts report similar positions are still in play.

The net short sterling position was also halved to about 6.5k contacts from 15.6k contracts. This is the smallest net short position since early Sept. Given the subsequent price action and futures activity, speculators may have already begun rebuild short sterling positions. Speculators have not been net long sterling futures since August 2008. In the middle of Oct 2009 a record short position of 65.3k was reported.

The yen is a noteworthy exception. The Commitment of Traders shows more than a 50% jump in net long positions to 35.5k from 21.8k. It is the largest net long position in a month. The dollar has been trending lower against the yen since peaking just above JPY92 in Oct23-27. Although there is some talk that the dollar carry-trade will be replaced by a yen carry-trade, there is not evidence among the speculative community. The net speculative yen position was short from late March through mid-May and again flirted with a net short position in mid-June through early July.

The dollar's downside momentum appears to be easing in the JPY88.60-80 area and there is much talk of barrier structures near JPY88.00, which corresponds to the Oct 7 low just ahead of that level. The low for the year was set in late Jan near JPY87.13.

The net noncommercial positioning in the Swiss franc, Canadian dollar and Australian dollars were little changed. Of note, speculators have been fighting the Swiss National Bank and have been net long francs in the futures market since the middle of Q2, with a single exception in mid-August. At a little more than 22k contracts long, the net speculative position is within a few hundred contracts of its longest position in five years.