Speculators Make Concerted Effort to Pick Bottom in Sterling

October 29, 2016

2 minute read

Speculators Make Concerted Effort to Pick Bottom in Sterling

Speculators in the futures market increased their gross long sterling position by nearly 20% to 63.6k contracts (+11k) in the reporting week ending October 25. In mid-September the gross long position stood at 40.4k contracts.

Not everyone is convinced that sterling will bounce. The bears extended their gross short sterling position by 3.4k contracts to 147.6k. On the eve of the UK referendum, the gross short position was around 94k contracts.

Again speculators, both bulls and bears have rapidly expanded their exposure in recent weeks. In the most recent reporting period, the bulls added 14.7k contracts, lifting the gross long position to 142.9k contracts. Given the bearish sentiment and recent trend, this is a very large position. It is about 5k contracts shy of a record set in May 2007.

The bears increased the pressure by adding 29.3k contracts to their gross short position of 266.7k contracts. This is 5k contracts shy of the record set in March 2015. The gross short position has risen by nearly 100k contracts since mid-September.

The bears continued to run for cover in the Mexican peso futures. They covered another 10k contracts to reduce the gross short position to 54k contracts. It has been halved since the end of September's record of nearly 111k contracts. The bulls, however, were not so sure, and liquidated 4.7k contracts, leaving them with 28.7k.

There were two distinct patterns in the speculative activity. With the exception of the peso, speculators added to gross long currency futures positions. They also added to the gross short positions, with the exception of the yen (-0.2k contracts) and the peso. Speculators were taking on more risk. This is lost if one focuses only on the net positions. Next week we will learn whether this was just a quick play or positioning ahead of this week's four central bank meetings and US jobs data (and of course, the run-up to the US election.

In the oil and T-Note futures, speculators cut exposure. They shaved their gross long oil position by 6.7k contracts to 571.8k. Speculators covered 2.3k contracts to reduce the gross short position to 168.2k contracts. This saw the net position slipped 4.4k contracts to 403.6k.

The adjustment in the 10-year Treasury note futures was larger. The bulls liquidated about 5% of their gross long position (31.9k contracts), leaving them with 631.3k contracts. It is the smallest position in two months. The bears covered 6.5k contracts bringing the gross short position to 556.8k contracts.

25-Oct		Commitment of Traders
	Net	Prior	Gross Long	Change	Gross Short	Change
Euro	-123.9	-109.3	142.9	14.7	266.7	29.3
Yen	44.6	37.0	82.4	7.4	37.8	-0.2
Sterling	-84.0	-91.6	63.6	11.0	147.6	3.4
Swiss Franc	-18.7	-16.4	18.8	0.5	37.5	2.8
C$	-13.3	-14.3	33.3	9.6	46.6	8.6
A$	31.9	30.0	83.2	2.6	51.2	0.7
NZ$	-0.4	-0.2	29.5	0.0	29.9	0.3
Mexican Peso	-25.3	-30.7	28.7	-4.7	54.0	-10.0
(CFTC, Bloomberg) Speculative positions in 000's of contracts Disclaimer

This post was originally published by Marc Chandler at his blog, marctomarket.com

Author

Marc Chandler

Marc Chandler has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks.

After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.

Disclaimer
Opinions expressed are solely of the author’s, based on current market conditions, and are subject to change without notice. These opinions are not intended to predict or guarantee the future performance of any currencies or markets. This material is for informational purposes only and should not be construed as research or as investment, legal or tax advice, nor should it be considered information sufficient upon which to base an investment decision. Further, this communication should not be deemed as a recommendation to invest or not to invest in any country or to undertake any specific position or transaction in any currency. There are risks associated with foreign currency investing, including but not limited to the use of leverage, which may accelerate the velocity of potential losses. Foreign currencies are subject to rapid price fluctuations due to adverse political, social and economic developments. These risks are greater for currencies in emerging markets than for those in more developed countries. Foreign currency transactions may not be suitable for all investors, depending on their financial sophistication and investment objectives. You should seek the services of an appropriate professional in connection with such matters. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete in its accuracy and cannot be guaranteed.