Bulls and Bears Saw Speculative Opportunity in Euros around UK Referendum

In the sessions before and after the UK referendum speculators in the currency futures did three things. First, they generally reduced exposure. This means gross longs and short positions were reduced. Of the 16 gross speculative currency futures positions we track, 12 fell.

Second, speculators were divided about what to do with the euro. The bulls added 20.9k contracts to their gross long holdings, which stood at 10.96k contacts at the end of the CFTC reporting week on June 28. The bears added 21.5k contracts to their gross short position, lifting it to 171.5k contracts.

The conventional approach which focuses on the net position misses this color. The net position was little changed. It is short 61.9k contracts. In the previous week, the net speculative position was short 61.3k contracts. It is the size of the gross positions that suggest the power of the unexpected. It is the gross position that is adjusted in an unexpected move or profit-taking. The finance pipes have to be sufficiently large and robust to handle the gross flows. The net position is a residual.

Third, in the sessions around the UK referendum, speculators added a very small amount to their gross long sterling positions and covered some of their gross short positions. Specifically, the gross long sterling position increased by 1.6k contracts (to 43.3k) and the 7.7k gross short contracts were covered (leaving 86k).

Most position adjustments were small. Outside of the euro, there was only one other significant (10k contracts) adjustment to gross speculative positions. The gross short position in the Australian dollar futures was cut by a quarter (11.1k contracts) to 34.5k.

Speculators in the oil futures market reduced gross longs and added to gross shorts. The bulls cut 4.8k contracts to bring their gross long position to 510.4k contracts. The bears added 9.5k contracts to bring their gross short position to 206.2k contracts. These adjustments resulted in a 14.4k contract fall in the next long position. The net long position peaked in mid-May just below 369k contracts. It stood at 304.2k contracts on June 28.

Speculators in 10-year Treasury note futures move to the sidelines. The bulls liquidated 43.3k contracts, leaving them with 668.2k. The bears covered 12.6k contracts, bringing their gross short position to 584.3k contracts. The net long position fell to 83.9k contracts from 114.7k.

28-Jun		Commitment of Traders
	Net	Prior	Gross Long	Change	Gross Short	Change
Euro	-61.9	-61.3	109.6	20.9	171.5	21.0
Yen	59.8	52.3	85.5	6.1	25.7	-1.4
Sterling	-42.7	-51.9	43.3	1.6	86.0	-7.7
Swiss Franc	10.9	6.4	22.9	-1.1	12.0	-5.6
C$	7.9	2.6	38.7	-2.0	30.7	-7.3
A$	-2.0	-7.0	32.6	-6.0	34.5	-11.1
NZ$	-2.8	-3.0	29.8	-0.3	32.6	-0.4
Mexican Peso	-65.3	-68.9	13.4	-0.1	78.7	-3.7
(CFTC, Bloomberg) Speculative positions in 000's of contracts