Date: 21 Aug 2017

Friday’s release of data by the US’ Commodity Futures Trading Commission for the week ending August 15 showed, as ThomsonReuters (TR) reported that “speculators reduced their negative bets on the US dollar this week to US$8.84 billion from US$10.23 billion.” TR wrote that “the reduction of dollar short bets came as investors pulled out of historic long positions in the euro and Canadian dollar,” noting that in the prior week that ended August 8 “euro net long bets… had grown to their largest position since May 2011.” But all may not be quite as it seems and traders might find it useful to delve deeper into the CFTC data rather than just taking the headlines at face value. The net long euro position (EURUSD) did indeed drop in the latest CFTC data falling to 79,267 contracts (each worth US$125,000) from 93,685. That’s clearly a decline in long euro short US dollar positioning. Or is it? Recent CFTC data has also been showing a very substantial short net yen position (USDJPY) but Friday’s data showed that exposure had also been trimmed.  The net short yen position fell to 77,492 contracts (each worth 12,500,000 yen) from 95,813. That’s a fall of 18,321 contracts. And of course that represents a scaling down of the long dollar/short yen exposure. But what about euro/yen (EURJPY)? If those who trade through the CFTC had reduced a long euro/short yen position it would show up through a dual reduction in the size of the long euro position versus the US dollar and through a fall in the size of the short yen position versus the US dollar as euro/yen is just euro/dollar multiplied by dollar/yen. And that’s exactly what the data showed. As traders plan their strategies for the new trading week they might wish to bear that in mind. It may well be that not only is the data showing a fall in the CFTC-recorded net short US dollar position but is also indirectly showing that the market is also materially less long of euros versus yen than it was.

The net long euro position (EURUSD) did indeed drop in the latest CFTC data falling to 79,267 contracts (each worth US$125,000) from 93,685. That’s clearly a decline in long euro short US dollar positioning. Or is it? Recent CFTC data has also been showing a very substantial short net yen position (USDJPY) but Friday’s data showed that exposure had also been trimmed.  The net short yen position fell to 77,492 contracts (each worth 12,500,000 yen) from 95,813. That’s a fall of 18,321 contracts. And of course that represents a scaling down of the long dollar/short yen exposure. But what about euro/yen (EURJPY)? If those who trade through the CFTC had reduced a long euro/short yen position it would show up through a dual reduction in the size of the long euro position versus the US dollar and through a fall in the size of the short yen position versus the US dollar as euro/yen is just euro/dollar multiplied by dollar/yen. And that’s exactly what the data showed. As traders plan their strategies for the new trading week they might wish to bear that in mind. It may well be that not only is the data showing a fall in the CFTC-recorded net short US dollar position but is also indirectly showing that the market is also materially less long of euros versus yen than it was.

Written by Neal Kimberley, External Currency Analyst.