Canadian Dollar Bulls and Aussie Bears Add Exposure into Year-End

January 2, 2017

2 minute read

Canadian Dollar Bulls and Aussie Bears Add Exposure into Year-End

There were five significant position adjustments by speculators in the currency futures market in the last full reporting period of the year, ending on December 27. That many participants cut positions is not really surprising. It is where speculators added to exposure that may be more intriguing.

Of the five significant speculative adjustments, by which we mean a gross position adjustment of 10k of more contracts, the Japanese yen accounts for two. Speculators slashed gross long positions by a third (23.6k contracts) to 40.6k. They also covered 10% of their gross short position (12.1k contracts) leaving 127.6k contracts.

Speculators more than halved their gross long Swiss franc position. The 19.2k contract liquidation brings the gross long position to 14.3k contracts. It follows a 27.8k contract jump the prior reporting period, which we had suspected was linked to the contract expiry. The immediate unwind of its lends more credence to our suspicion. Last week's jump in gross longs swung the net position in favor of the bulls, but not with the unwind, the net speculative position is short again.

That leaves the two currencies in which speculators took on substantial more risk in thin markets ahead of the end of the year. The bulls scooped up 14.4k Canadian dollar futures contracts to nearly double the gross long position to 36.6k. The bears saw an opportunity too and added 4.2k contracts to its gross short position which now stands at 38.2k contracts. The net position was reduced to 1.6k contracts from 11.8k net short.

Of note the net speculative position in the Australian dollar is short 1.6k contracts. While the net short position in the Canadian dollar was being reduced, the net Australian dollar position is falling ad shifted to favor the shorts for the first time in six months. This swing in the net position was a function of the 11.2k-contract increase in the gross short positions to 45.6k contracts. To illustrate the bearish development not the gross short position began the month near 27.4k contracts. The bulls also saw an opportunity and added 5.8k contracts to the gross long position, which now stands at 44.1k contracts.

The bulls in the light sweet crude oil futures market are not disturbed by the continued broadly sideways activity. They added 5.2k contracts, lifting the gross long position to 608.9k, just off the record 615k seen earlier in December. The bears covered another 3.1k contracts, leaving them with 163.9k gross short contracts, the smallest in a year.

The bears were undaunted in the 10-year Treasury note futures market. They added 61.8k contracts to the gross short position, which at 792.3k contracts is a new record. The bulls liquidated 58.2k contracts, bringing it to 451.3k contracts. These adjustments saw the net speculative position jump by 50% to 341.1k contracts from 221.6k contracts, a new record net short positions. Some of these late shorts seem vulnerable to a squeeze.

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.