According to the latest Commitment of Traders (COT) report, large speculators continue to expect a weaker dollar, favoring commodities and the commodity currencies. Equity markets, meanwhile continue to climb to fresh all-time highs amid record overbought conditions. Elsewhere, Japanese yen traders appear to be caught wrong-footed, EUR/USD futures speculation reaches yet again another bullish extreme, and retail FX traders continue to fight dollar weakness in anticipation of a turn for the beleaguered greenback.
The Japanese yen is in a precarious situation, typically, whenever the retail population reaches an extreme, futures traders are normally on the exact opposite extreme. This, however, is not the case as both remained positioned for the yen to weaken. The latest COT report revealed that as of this past Tuesday, yen speculators had increased short positions and decreased long contracts, leaving an extremely (net) short stance that continues to hover near the largest (net) short position in years vs the USD.
Meanwhile, the retail population which had been selling JPY since the start of 2018, accelerated their bearishness last week to reach a new low in yen optimism. This suggests that there’s plenty of room for speculators to buy, given less than 20% of the total (non-commercial) contracts outstanding are long.
That said, while retail sentiment (for the yen) may have broken down, it does resemble a capitulation of some sort, which tends to portend a turn in sentiment. As such, once price-action in the USD/JPY reaches a key level of support, which in this case would be near the Y108 handle, there should be some sort of reprieve for the dollar, at least in the short-term.
Unfortunately, for dollar bulls, however, while price-action remains south of the key Y110.87 mark, technically there’s a high probability of testing the 105.58/106.63 area once key support at Y108 has cleanly been broken.
The latest COT report revealed once again that speculative euro positioning by non-commercial traders reached another record net long position.This demonstrates that speculators remain extremely optimistic despite being involved in one of the most overcrowded trades. According to recent retail trading data, the retail population continues to sell the EUR/USD into strength, seemingly forming a ceiling in euro sentiment near the 40% threshold.
