Commitment of Traders Updated: Speculators Caught Wrong Footed

The CFTC reported released the Commitment of Traders report on Monday due to the US holiday last week.  It covers the week through November 20.  That means that it does not capture the rally from seen at the end of last week.  

Our hypothesis was that the dollar's sell-off against the major currencies, except the Japanese yen, was not a function of some ill-placed optimism about a Greek package or optimism about the US avoiding the fiscal cliff, or the unexpected improvement in the ZEW report, all of which had been suggested by other observer.  

Instead, we suggested that the price action might be explained better by the political rhetoric coming from the anticipated head of the next government in Japan.   The large sell-off in the yen forced the position adjustment that led to a short squeeze of the other major currencies.  

The Commitment of Traders data lends support to our hypothesis, though of course it is no smoking gun.  During the days leading up to the dollar's sell-off, the speculators added to all short positions in the all the currency futures, but the Swiss franc.  Gross longs in all the currency futures, except sterling and the yen fell.  The short-term trading market was leaning the wrong way.  

As the table below shows, there was more than a 50% increase in gross short yen positions.  It was the largest position adjustment by far during the reporting period.  That it was the main catalyst does not require a stretch of the imagination.  

The net short yen position of 51.4k compares with 18.2k net short at the end of October.  In March the net short position reached a 5-year high of 67.6k contracts.  

Just as speculative players continued to add amass a large short yen position, they also continued to extend the short euro position.  In fact, this reporting period was the fifth consecutive one that the short position increased.  The net long sterling position was pared to less than 1000 contract.  It began the month a little above 23.4k.   The net long Canadian dollar position declined for ninth consecutive month.  At 61.4k, the net long position has been nearly halved over the past two months.  In a like fashion the net long peso position continued to trend lower and it at smallest level since late September.  

The reporting period also saw the net short franc position increase by 50%, off a small base.  The net long Australian dollar position was also trimmed in the days before it staged a rally to test two-month highs. 

week ending Nov 20		Commitment of Traders
		(speculative position in thousand of contracts)
	Net	Prior Week	Gross Long	Change	Gross Short	Change
Euro	-91.4	-83.6	36.7	-3.2	128.1	4.6
Yen	-51.4	-30.4	28.3	6.3	79.7	27.2
Sterling	0.7	8.2	46.5	0.7	45.8	8.2
Swiss franc	-12.5	-8.9	7.2	-4.2	19.7	-0.6
C$	61.4	66.1	72.9	-3.0	11.4	1.6
A$	64.7	68.1	104.6	-1.2	39.9	2.2
Mexican peso	86.8	96.9	96.5	-6.5	9.7	3.7