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COMMITMENT OF TRADERS ANALYSIS
Prepared by Jack McIntyre
Currency Contracts
Summary: Latest MCM TradeWatch COT data analysis, a review of currency futures positions as of Tuesday, November 4th, shows that large traders are long the European currencies, short the dollar block (CAD$ and AUD$) and short the yen. Moreover, they have room to add to these positions so the trends which are currently in place, can stay that way from a positions standpoint.
The primary observation which we will make about the latest Commitment of Traders data for the currency contracts is that nothing really jumps out at us in terms of positions and the FX market leaning sharply one way or the other. With the European currency having put in impressive performances over the last couple of weeks (and long in the case of the British Pound) it makes sense that the large traders (who have no exposure to the spot FX market and are typically your hedge fund and/or CTA types), are net long the Deutschemark, Swiss Franc and British Pound contracts. We'll also add that this group is not really that close to their three-month record net long position so, in theory, they have more room to add to their current positions if the climate in the FX market warrants it (which it should). This means that the recent highs in each of these contracts should not act as major resistance (the type of resistance which brings a halt to trends).
In the dollar block the bias has been for the large traders to either add to their net short position or maintain a fairly large net exposure to the CAD$ and AUD$ contracts. In the case of the CAD$ contract, large traders are coming off a record three-month net short position on October 28th when they were short 26,066 contracts. This compares to their all-time record net short position of 27,195 contracts (they aren't that far away from it). This tells us that if there is a strong rotation higher in the CAD$, there are going to be an awful lot of trapped shorts below the market. The subsequent round of short covering could accelerate any move higher in the CAD$ contracts (a close above 71.70 in the December CAD$ contract could start the short covering process).
Large traders continue to be perennial shorts in the AUD$, but are not really leaning too much offsides with a current net short of 8,508 contracts. However, if the December AUD$ contract closes above 71.00 for multiple sessions, this group could feel some heat.
There is no doubt that the large traders are increasing their short exposure to the yen contract. Over the last several weeks this group has moved from being net short 10,907 contracts to net short 20,842 contracts, almost doubling their net position. We expect that with $/yen have firmly broke out of its two month long trading range, this net short 20,842 contracts position is understated. However, they would have to more than double their current short position to approach their record net short position of 43,099 contracts. This means that there is more room for this group to continue to short the yen contract.
November 12, 1997MCM, Inc.
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Financial Commentary | Consensus National Futures and Financial On Line Index
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