US Treasuries sold-off last week, helping drag the trade-weighted Japanese yen down and US dollar up. The latest Commitment of Traders (COT) report highlighted a pause in the yen carry trade re-build and a substantial draw-down in positioning of the British pound. Meanwhile, the head & shoulders pattern in the EUR/USD continues to develop, but still remains unconfirmed, and the Loonie (USD/CAD) managed to break a key trendline. And finally, US Bond (non-commercial) speculators position themselves for more yield curve flattening.
The (Japanese) yen carry trade paused its recent run-up, according to the latest COT (Commitment of Traders) report, as non-commercial speculators increased their gross long & short positionsvs the Japanese currency.The percentage of net longs inched up to 26%, as a result, putting the number of long contracts near their 2017 highs. The Japanese yen, however, fell across-the-board last week, falling to a new year-to-date low against a trade-weighted basket of currencies. According to recent retail FX positioning data, the retail population has become more bullish (in terms of net percentage of contracts), upping their (yen) long positions to 56% at the end of last week.This may explain why the USD/JPY was able to clear the 113.00 level (USD/JPY). Meanwhile, technical (weekly & daily) indicators have turned back up, shifting momentum to critical resistance at 114.33. A sustained break would expose 115.00/55 to the upside, while only a loss of support in the 111.77 region (USD/JPY) would be able to stall overall bullish momentum.
Speculative euro positioning by non-commercial traders dipped slightly, according to the latest COT data. This marks a pullback from the largest net long position by (non-commercial) speculators on record. Although, the EUR/USD has managed to stabilize since reaching a fresh 3-month low two weeks ago, price-action has seemingly traced-out the right shoulder of the developing head & shoulders pattern. If key support at 1.1677 is cleanly broken, the bearish pattern will confirm a technical break-down, which would quickly target the 1.1421/77 region initially. That said, a sustained push above 1.1900 would negate the bearish pattern and shift momentum back to the upside.
British pound speculative (bullish) sentiment pulled-back quite significantly despite increased expectations of a rate hike at the next MPC meeting. According to most recent COT report, large (non-commercial) speculators increased their short positions and reduced their long positions, allowing for the net long position to drop to 52% from 55%. Meanwhile, the retail FX population finally pulled back their net long position from its 6-month highs, suggesting a potential turn in retail sentiment. While, this is typically bullish for Sterling, recent price-action suggests that weekly technical momentum has stabilized and that a range is forming between 1.30 & 1.36. That said, if 1.3338 (GBP/USD) continues to cap to the upside, attention will remain on the lower end of the range at 1.30, then 1.2774/1.2800 if cleanly broken.
Bullish sentiment by Australian dollar (large futures) speculators dipped again for the 3rd straight week, highlighting a potential turn in sentiment off the recent record net long position.According to the latest retail FX positioning data, the retail trading population remained at the upper end of their recent bullishness towards the AUD. Price-action is also potentially highlighting a lower top just below the .79 handle (AUD/USD), which suggests that Aussie could be setting-up for a meaningful decline that would first target .7631 then .7500, if .7730 were to be taken-out to the downside. At this point, it would take a sustained move back above .7879, to help the AUD/USD attempt to stabilize near-term bearish momentum and shift focus back to the psychological .8000 threshold.
Canadian dollar (non-commercial) speculation stalled somewhat, but remains extremely high, as positioning yet again persists at the highest level of net longs (by percentage) in nearly 5 years. Meanwhile, the USD/CAD pushed higher at the end of last week, highlighting a fresh high in the recovery of last month’s 2-year lows. More importantly, Friday’s thrust higher highlights a bullish breakout of trendline resistance and marks a potential key higher low for the USD/CAD’s 6-week recovery. Moreover, the divergence between (non-commercial) speculative sentiment and price-action is still obvious, as the Loonie has declined overall the past few weeks while the net long position by futures speculators has moved to extreme highs. This suggests that if the USD/CAD can sustain bullish momentum going forward, that large speculators will have to capitulate on their extremely bullish (CAD) position at some point. That should re-open the 1.2717/75 region, provided Friday’s move doesn’t turn out to be a daily & weekly buying exhaustion.
Gold futures (bullish) sentiment has continued to wane as of late, but remains at a relatively high level, as the net long percentage of contracts ticked down to 77% from 78%, while the net long total remained basically the same. Meanwhile, Gold futures since recovering off a key (Fibonacci) retracement at 1264 (61.8% of the latest up-move from July) a few weeks ago, has begun to pull back again. This may be partly due to the retail population, which according to recent positioning data, has remained optimistic towards the yellow metal. If retail traders continue to accumulate gold, then the technical inability to reclaim the 1321 region, could highlight a key lower top formation, which would have longer-term (bearish) ramifications, potentially re-opening 1237 ahead of psychological support at 1200. That said, if Friday’s bearish engulfment (technical pattern) goes unconfirmed next week, then further ranging can be expected to persist in the short-term.
Crude oil futures sentiment remained relatively up-beat, as positioning by futures traders (into October 17th) increased slightly in terms of gross and net long positions. Meanwhile, Crude oil prices failed to build on the prior week’s bull engulfment (technical pattern), which could suggest a minor range between 52 & 49 could be developing. That said, if 52.29 is not cleared to the upside, then momentum could also be developing for a double top in the 52 region, which could be confirmed with a sustained break of 49.29 to the downside.
E-mini S&P 500 futures continue to defy gravity, reaching another all-time high.Speculators grew more optimistic by substantially decreasing their gross short positions once again. This allowed for the net long position to bump up from 57% to 58%, which suggests that speculator’s are becoming more optimistic, even while price-action continues to register record highs week after week. The overall uptrend in S&P 500 futures, while technically overbought (in both daily & weekly indicators) should remain in tact while maintaining support ahead of the psychological 2500 region. That said, if Friday’s thrust turns out to be a daily & weekly exhaustion, it could set the stage for a well-needed pullback that could help unwind overbought conditions.
Nasdaq 100 futures speculators made modest adjustments for the 3rd straight week in the latest COT report. The lethargic mood exhibited by non-commercial traders continues to highlight the divergence with Nasdaq 100 futures price-action, which has trended upwards for most of the year while bullish sentiment has trended downward, albeit from a high level. That said, with the recent successful extension through the August and September highs (6020), the stage has already been set for sustained strength heading into the heart of the earnings season. Only a retreat back below 6020, at this point, would potentially stall bull momentum.
US 10-Year futures bullish sentiment declined markedly, as non-commercial traders pared back both gross and net longs. The move in sentiment is playing catch-up with recent weakness in US 10-year futures price action, as the successful defense of the May & July lows (near 125) by bond bulls two weeks ago has quickly evaporated. The fact that bond prices finished the week at the extreme lows, however, serves as a warning of a temporary selling exhaustion, the similar fashion that completed the previous week’s move, but in the opposite direction. That said, near-term momentum could re-focus a bearish breach of platform support at 124.83, which would initially expose the 124.00/124.20 area next, which correlates roughly to 2.45/2.50% (US 10-year yields).
US 30-year futures speculators were once again less cautious, according to the latest COT report, as the net long percentage nudged higher to 58% from 54%. Gross longs were added, highlighting a move back towards the August peak, which then marked the highest levels seen since 2008. Meanwhile, the recovery made in price-action now highlights a potential lower top just ahead the 152 region, and although, selling pressure may have temporarily exhausted into the weekend, bear momentum seems to be in place for a move back towards 151.23, which coincides with the early-October swing low and roughly 2.93% in US 30-year yields. More importantly, however, is that the recent divergence between 10-year & 30-year positioning, highlights the flattening of the yield curve, which if continued, could have bearish implications for financial stocks, and more broadly, the entire US economy.
