IvanGlobalPrime
Company Representative
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My name is Ivan Delgado, Head of Market Research at Global Prime and FX Trader. Out of my unconditional alignment to the values at Global Prime, I am on a mission to pass on my decade-long knowledge by providing regular market commentary and other types of material that is applicable, actionable and insightful to traders (no fillers, no-nonsense). The nurturing of dozens of contacts over the years at an institutional-level has allowed me to gradually bridge an information gap between what is available to the smart money, and that of the retail trader. I want to share practical information that can be relevant to your trading decisions, and ultimately leave it up to you to decide what may best suit your own interests.
Now let's get into the nitty and gritty...
The CoT report, against conventional belief, does not represent a lagging indicator. The right interpretation of the data provided, published every Friday at 3:30 E.T., and reflecting the commitments of traders up to the prior Tuesday, offers comprehensive insights to gauge how the smart money is positioned. Large institutions and commercials tend to leave a trail of breadcrumbs along the way, and through the CoT, we can follow what their intentions are, therefore, it should be seen as a valuable resource.
Euro (6E) FX (CME): “Inconclusive Price Action, Large Specs Renew Short-Side Bets ”
Click here to access the CoT chart via barchart
There was barely any change in open interest during the week of July 24th through to July 31st, as price action traded encapsulated within a tight 1 cent range between 1.1620 and 1.1730.
When looking at the latest action by large specs, a bearish narrative developed as renewed short-side bets entered the market (152k shorts vs 149 prior) while longs were reduced (from 180k to 174.5k), giving us further clues of the undeterred commitment to decisively short this market by the smart money at any chance there is to be filled at levels above 1.17.
This time, leverage funds were more shy, failing to add shorts on the bounce in price action we saw (last at -67.4k vs -68.4 prior week). As per commercial activity, it was a very quiet week mainly due to price action contained within a confined range, hence commercials’ bids/offers large unfilled on the edges 1.1750/1.1600.
Dealers reduced their longs significantly from 55.4k to 45.7, which combined with the addition of shorts, takes us from -108k down to 123k. The recent move by these account type added to the selling pressure last week. Last but not least, asset managers kept adding to their longs, now totalling over 274k long contracts vs 115k shorts, which translate in a positive jump of over 5k in the total asset managers long. These macro accounts continue to signal they perceive genuine value to buy EURs at near-by levels.
To sum up, last week’s price action is quite inconclusive giving the limited EUR/USD moves seen and the absence of key liquidity levels tested. The new insights we can obtain are that large specs are definitely very interested to keep selling ahead of the 1.17 area, while in the macro picture asset managers and commercials should remain quite active capping the downside moves, with greater interest sub 1.16 down to 1.15.
Sterling (6B) FX (CME): “Bounce Seen as Opportunity to Add Shorts”
Click here to access the CoT chart via barchart
We saw a tepid variation in open interest (230.7k last vs 231.5k prior). As seen in EUR/USD, large specs added extra shorts in the 6B contract on the retrace up towards 1.32, indicating the firm interest to play shorts by the smart money (-48k last vs -46.5k prior), which if anything, if further confirmation that the bearish trend is likely to stay in place, barring any Brexit shocker.
As per leverage funds, there were no changes at all. Meanwhile, as one would expect, commercials showed renewed selling interest on the correction higher, exerting further downward pressure on prices as the key 1.32 was approached. Adding to the bearish case, asset managers also added to their shorts by an aggregate of 1k+, which strengthens the notion of 1.32+ being a significant macro resistance to re-take by buyers.
What we can learn from last week’s change in CoT positioning is that 1.3150-1.32 is perceived as a major supply area as key players (asset managers, large specs, commercials), all show a very similar interest to add shorts, essentially increase the supply imbalances and hence firming up the area as a key macro resistance. It also communicates that the bearish trend is likely to persist for the time being.
Japanese Yen (6J) FX (CME): “Market Lightened Up Ahead of BoJ, Evidence of Yen Short Not Found”
Click here to access the CoT chart via barchart
Analyzing the 6J contract this week can reveal quite a few gems as the price action seen (positive 5d performance in USD/JPY) factors in the much-anticipated BoJ policy outcome. In terms of open interest, leading up to the big event the market lightened up its overall positioning from 237.5k to 232k outstanding contracts. It makes sense for liquidity to have dried up ahead of the event.
Let’s now dive into the actual change in market positioning. The main takeaway from the large specs accounts is that a significant number of Yen shorts (over 8k) were closed due to the risk of a less dovish BoJ. Commercial accounts participated in long-sided business but very moderately while short commercials were reduced in the 6J. No surprise here as USD/JPY saw a dip ahead of the BoJ, seen as an opportunity to load up Yen shorts. As per leverage funds, the exact same pattern as seen via large specs, that is, reduction of Yen shorts heading into the BoJ decision, which went from a total of -61k to -55k. When it comes to Dealers, we would expect a decrease in the overall positions and that’s precisely what we saw, from 91k to 85.5k. Lastly, asset managers opened over 2k fresh Yen shorts vs 1k new longs, taking the total to -7k+.
All in all, the post-BoJ rally is so far not being backed up by an evidence of fresh Yen short positions, with most of the last CoT 5d activity being about lightening up exposure ahead of the BoJ, with the subsequent overextension of Yen sales on Tuesday, Aug 31st, a move mainly driven by a removal of liquidity. Next CoT will be very quite revealing, as it will allow us to dive deeper into how big players interpret the latest tweaks by the BoJ on widening their long-term bond yield range and the adjustments on ETF purchases.
Australian Dollar (6A) FX (CME): “Tight Range Set to Extend as Ccials/Specs Dominate Edges”
Click here to access the CoT chart via barchart
The open interest on the Aussie increased in the order of 3.5k, with large specs re-engaging in sales quite aggressively as the exchange rate popped up early in the week through 0.7450 on solid Aus trimmed inflation. Notwithstanding the slight pick-up in Aus trimmed CPI (fav inflation measure of the RBA), this increase on sell-side activity reveals quite a bearish picture and shows that the smart money remains firmly inclined to stay short the market, finding the bounces in price an opportunity to add into shorts. Note, lev funds, which are speculative in nature as large specs, also saw the rise in the Aussie as a chance to sell it (-28.5k vs -24k prior)
Commercials also depict a really interesting development, as the decline through 0.74 on the positive US GDP saw plenty of activity to buy up the Aussie, which helps us understand the fairly robust price bounce towards the vicinity of the US GDP-led supply. Remember, as reported last week, these hedger-type account have been notorious buyers of the Australian Dollar through late June and all July, taking the total position to its highest level since Nov 2015, and most importantly, now making up over 45% of the total open interest, which is getting into quite extreme for an eventual more cyclical bullish reversal in prices. Looking at asset managers, their positions barely changed, while dealers added to longs (82.7k vs 77k).
Bottom line, heading into August, expect the market to remain fairly range-bound, with the upside being capped by leverage accounts, while commercials hold the prices from over-extensions to the downside. Buying and selling towards the upper/lower ends of the range should bear its fruits.
Important Footnotes:
.
Now let's get into the nitty and gritty...
The CoT report, against conventional belief, does not represent a lagging indicator. The right interpretation of the data provided, published every Friday at 3:30 E.T., and reflecting the commitments of traders up to the prior Tuesday, offers comprehensive insights to gauge how the smart money is positioned. Large institutions and commercials tend to leave a trail of breadcrumbs along the way, and through the CoT, we can follow what their intentions are, therefore, it should be seen as a valuable resource.
Euro (6E) FX (CME): “Inconclusive Price Action, Large Specs Renew Short-Side Bets ”
Click here to access the CoT chart via barchart
There was barely any change in open interest during the week of July 24th through to July 31st, as price action traded encapsulated within a tight 1 cent range between 1.1620 and 1.1730.
When looking at the latest action by large specs, a bearish narrative developed as renewed short-side bets entered the market (152k shorts vs 149 prior) while longs were reduced (from 180k to 174.5k), giving us further clues of the undeterred commitment to decisively short this market by the smart money at any chance there is to be filled at levels above 1.17.
This time, leverage funds were more shy, failing to add shorts on the bounce in price action we saw (last at -67.4k vs -68.4 prior week). As per commercial activity, it was a very quiet week mainly due to price action contained within a confined range, hence commercials’ bids/offers large unfilled on the edges 1.1750/1.1600.
Dealers reduced their longs significantly from 55.4k to 45.7, which combined with the addition of shorts, takes us from -108k down to 123k. The recent move by these account type added to the selling pressure last week. Last but not least, asset managers kept adding to their longs, now totalling over 274k long contracts vs 115k shorts, which translate in a positive jump of over 5k in the total asset managers long. These macro accounts continue to signal they perceive genuine value to buy EURs at near-by levels.
To sum up, last week’s price action is quite inconclusive giving the limited EUR/USD moves seen and the absence of key liquidity levels tested. The new insights we can obtain are that large specs are definitely very interested to keep selling ahead of the 1.17 area, while in the macro picture asset managers and commercials should remain quite active capping the downside moves, with greater interest sub 1.16 down to 1.15.
Sterling (6B) FX (CME): “Bounce Seen as Opportunity to Add Shorts”
Click here to access the CoT chart via barchart
We saw a tepid variation in open interest (230.7k last vs 231.5k prior). As seen in EUR/USD, large specs added extra shorts in the 6B contract on the retrace up towards 1.32, indicating the firm interest to play shorts by the smart money (-48k last vs -46.5k prior), which if anything, if further confirmation that the bearish trend is likely to stay in place, barring any Brexit shocker.
As per leverage funds, there were no changes at all. Meanwhile, as one would expect, commercials showed renewed selling interest on the correction higher, exerting further downward pressure on prices as the key 1.32 was approached. Adding to the bearish case, asset managers also added to their shorts by an aggregate of 1k+, which strengthens the notion of 1.32+ being a significant macro resistance to re-take by buyers.
What we can learn from last week’s change in CoT positioning is that 1.3150-1.32 is perceived as a major supply area as key players (asset managers, large specs, commercials), all show a very similar interest to add shorts, essentially increase the supply imbalances and hence firming up the area as a key macro resistance. It also communicates that the bearish trend is likely to persist for the time being.
Japanese Yen (6J) FX (CME): “Market Lightened Up Ahead of BoJ, Evidence of Yen Short Not Found”
Click here to access the CoT chart via barchart
Analyzing the 6J contract this week can reveal quite a few gems as the price action seen (positive 5d performance in USD/JPY) factors in the much-anticipated BoJ policy outcome. In terms of open interest, leading up to the big event the market lightened up its overall positioning from 237.5k to 232k outstanding contracts. It makes sense for liquidity to have dried up ahead of the event.
Let’s now dive into the actual change in market positioning. The main takeaway from the large specs accounts is that a significant number of Yen shorts (over 8k) were closed due to the risk of a less dovish BoJ. Commercial accounts participated in long-sided business but very moderately while short commercials were reduced in the 6J. No surprise here as USD/JPY saw a dip ahead of the BoJ, seen as an opportunity to load up Yen shorts. As per leverage funds, the exact same pattern as seen via large specs, that is, reduction of Yen shorts heading into the BoJ decision, which went from a total of -61k to -55k. When it comes to Dealers, we would expect a decrease in the overall positions and that’s precisely what we saw, from 91k to 85.5k. Lastly, asset managers opened over 2k fresh Yen shorts vs 1k new longs, taking the total to -7k+.
All in all, the post-BoJ rally is so far not being backed up by an evidence of fresh Yen short positions, with most of the last CoT 5d activity being about lightening up exposure ahead of the BoJ, with the subsequent overextension of Yen sales on Tuesday, Aug 31st, a move mainly driven by a removal of liquidity. Next CoT will be very quite revealing, as it will allow us to dive deeper into how big players interpret the latest tweaks by the BoJ on widening their long-term bond yield range and the adjustments on ETF purchases.
Australian Dollar (6A) FX (CME): “Tight Range Set to Extend as Ccials/Specs Dominate Edges”
Click here to access the CoT chart via barchart
The open interest on the Aussie increased in the order of 3.5k, with large specs re-engaging in sales quite aggressively as the exchange rate popped up early in the week through 0.7450 on solid Aus trimmed inflation. Notwithstanding the slight pick-up in Aus trimmed CPI (fav inflation measure of the RBA), this increase on sell-side activity reveals quite a bearish picture and shows that the smart money remains firmly inclined to stay short the market, finding the bounces in price an opportunity to add into shorts. Note, lev funds, which are speculative in nature as large specs, also saw the rise in the Aussie as a chance to sell it (-28.5k vs -24k prior)
Commercials also depict a really interesting development, as the decline through 0.74 on the positive US GDP saw plenty of activity to buy up the Aussie, which helps us understand the fairly robust price bounce towards the vicinity of the US GDP-led supply. Remember, as reported last week, these hedger-type account have been notorious buyers of the Australian Dollar through late June and all July, taking the total position to its highest level since Nov 2015, and most importantly, now making up over 45% of the total open interest, which is getting into quite extreme for an eventual more cyclical bullish reversal in prices. Looking at asset managers, their positions barely changed, while dealers added to longs (82.7k vs 77k).
Bottom line, heading into August, expect the market to remain fairly range-bound, with the upside being capped by leverage accounts, while commercials hold the prices from over-extensions to the downside. Buying and selling towards the upper/lower ends of the range should bear its fruits.
Important Footnotes:
- Volume & OI: Open interest represents the total number of contracts, including both buy and sell positions, outstanding between all market participants. We should think of open interest as new business (additional liquidity). Generally, to gain conviction over a potentially developing bullish market, we could analyze whether or not open interest increases, new buyers coming in, which fuels the continuation higher on renewed commitment, ideally replicated by volume increasing or at least maintaining a steady measure. If on a bullish market, the open interest is decreasing, it has a different meaning all together, suggesting shorts covering, players stopped out, and hence money is leaving the market. This information to understand move dynamics is key.
- Large Specs: The Net Non-Commercial Positions, often referred as Large Specs, comprise contracts held by large speculators, mainly hedge funds and banks trading currency futures for speculation purposes. Speculators, for the most part, have no need to use the futures market as hedging, with the sole intention being speculative in nature, buy or sell at a profit, before the contract becomes due. This category tends to carry large positions and are often guided by fundamental developments. Historically, they are characterized by being trend-followers and tend to get the right directional bias.
- Commercials: Entities that are commercially engaged in business activities hedged by the use of the futures or options markets. The main characteristic of this group is that their activity orbits around the need to buy or sell the underlying contract to minimize the risk of exchange rate variations in the future. Like the large specs, this group also tends to carry large positions at times and due to the hedging nature of its activity, act as contrarian traders, best buying when prices are low and vice versa.
- Dealers: These participants are typically described as the "sell side" of the market or net hedgers. They don’t take positions to speculate for profits but instead design various financial strategies to allocate assets to institutional clients. They help us understand supply and demand dynamics and act as liquidity providers and tend to have matched books or offset their risk across markets and clients. Futures contracts are part of the pricing and balancing of risk associated with the products they sell and their activities. These include large banks (U.S. and non-U.S.) and dealers in securities, swaps and other derivatives. These participants track very closely the open interest.
- Asset Managers: These are institutional investors who tend to act slowly in established trends, which include pension funds, endowments, academic institutions, insurance companies, mutual funds and those portfolio/investment managers who predominantly represent institutional clients. Their performance is based on the average of the industry, not in the business of taking contrarian positions and/or changing their macro view that often.
- Leveraged Funds: These are typically hedge funds and various types of money managers, including registered commodity trading advisors (CTAs); registered commodity pool operators (CPOs) or unregistered funds identified by CFTC. The strategies may involve taking outright positions or arbitrage within and across markets. The traders may be engaged in managing and conducting proprietary futures trading and trading on behalf of speculative clients.
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