Open Interest Analysis: Currencies

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The latest update for the weekly Commitment of Traders (COT) report was released by the Commodity Futures Trading Commission (CFTC) on Friday for data ending on Tuesday June 11th.

Here are the weekly charts of each major futures currency with commentary on open interest and large trader trends.


Australian Dollar:

Australian dollar open interest has jumped and pushed further above the 10-Week Moving Average. Large trader positions remain in their extreme levels with Specs being bearish bets while the Commercials are on the opposite side.

The AUD price has felt the selling pressure in recent weeks and months. The battle is still on under the 0.70 level with prices being somewhat resilient after a rate cut.

OI rising with price trend lower suggests we could see more losses for the Aussie ahead. The extreme positioning in trader positions will likely help a bottom be found sooner than later but at what support level? The spike higher in OI, however, could also act as an early warning of a potential trend change as more and more positions are getting into the market.


British Pound Sterling:

British pound OI has gone higher in recent weeks and is much higher compared to the weeks after the original Brexit deadline. Speculator positions are in an expanding bearish position while the Commercials are bullish.

The rising level of open interest and expanding trader positions would suggest that the path of least resistence is likely lower in the short-term.


Brazil Real:

Brazilian real open interest dipped further from the recent cycle high. OI had ramped up after a very low spell over the second half of 2018. Large trader positions have come back as well with large trader positions now firmly in extreme levels. Specs are betting on a continued bearish trend in the Real and the opposite for Commercials.

Rising OI and Specs pushing their bearish bets further could help the bearish trend along in the near term (one caveat is that spikes in OI do tend to warn of trend changes being in the offing).


Canadian Dollar:

Canadian dollar open interest bounced a bit in the latest data and has been continuing along the trend of the 10-Week MA (currently in a medium level compared to its 3-year range). The large trader positions retreated in the latest data while the CAD price has been trending steadily sideways.


US Dollar Index:

Dollar index OI has been trending lower recently and remains below the 10-Week MA. The large traders positions have trended lower as well although they have been very steady. The DXY price, meanwhile, saw a decrease last week.

At the moment, OI Analysis would signal this market as a weakening uptrend as OI seems to have peaked and going lower while prices have continued higher. Fundamental factors and risk-off market moods may outweigh any short term sentiment so this is definitely a market to watch.


Euro:

Euro open interest has gained modestly over the past month(s) and is now in a high level. Commercials have seen their net position stay close to extreme levels while the Specs have been in a bearish extreme position already for some weeks (although lessening lately). The Euro price has been pressured in the past months and the bulls/bears continue to battle it out near 1.13.

If price can pierce higher and we see a paring of bets in the Speculator positions, we could see higher prices to come especially if the dollar position falters.


Japanese Yen:

Japanese Yen open interest has continued lower in the recent data points. Speculator Large trader positions are now out of their extreme level while the Commercial position reduced their bullish bets. The Japanese yen has been stronger in recent weeks as the JPY usually benefits from volatility and risk-off scenarios.

If speculators continue to unwind these positions, the JPY will likely have room to run higher, especially if geopolitical factors continue to cause risk-off sentiment.


Mexican Peso:

Mexican peso OI remains in a high level but has dropped sharply from the recent highs. The large trader positions are continuing to pare their extreme bullish bets after a record high. The Specs are bullish on this currency and the Commercials are strongly betting on a decline.

The previous patterns of extreme positions are illustrated in the chart with Comms eventually pulling price to their side in the months after extremes (Specs exiting positions). An interesting part this time around is that price has not gotten very high for such an extreme Speculator position. Could it go higher before a reverse? Or is this a weakening market now that Speculators have hit all-time highs but could not pull price that much further?

Could this strong OI level give us an early warning that the trend is coming to an end?


New Zealand Dollar:

NZD open interest has been expanded sharply recently and remains in a high level. The strong OI could help give more fuel to the bearish trend in place while Specs (bearish) and Commercials (bullish) push their positions which are very close to extreme levels.

Recently, the dovish RBNZ and a cut in interest rates have given momentum to bears. Rising OI and falling prices are characteristic of a strengthening or healthy bear trend.


Russian Ruble:

Russian ruble open interest continues to show very strong levels while large traders remain in extreme positions. Unlike many of the other extreme positions in currencies, Specs are betting on the ruble to gain while Commercials are betting on the ruble to decline.

This market is currently seeing strong OI that helps the uptrend stay intact as large traders hold their positions. Like the previous time we saw this pattern in the ruble (late 2017), a decline in open interest could alert us to the steam coming out of this rally.


Swiss Franc:

Swiss franc open interest fell again for a 6th week after previous gains pushed OI to the highest in just about a year. The large trader positions have now exited their extreme positions (Commercials bullish, the Specs are bearish).

The declining of open interest and the paring of the large trader positions suggests that this market is undergoing a possible trend change. The franc trend since 2017 has been lower but CHF is a safe haven currency and does well in times of global uncertainty and risk off. The other safe haven instruments such as US bonds and the JPY have been seeing more demand, does this start to hold true for CHF in the future?


Bitcoin:

Unfortunately, the CFTC has not updated the Bitcoin data since April 30th. This is most likely due to the small levels of OI and/or not enough large traders positions to qualify.

Bitcoin open interest has been very low and and the last data showed that it sits near its (short) historical bottom (Bitcoin contract started trading in December of 2017).

Prices have started rising recently and showing high volatility. Hopefully this data comes back soon and we can see what is happening or if any positioning has changed dramatically.


*COT Report: The weekly commitment of traders report summarizes the total trader positions for open contracts in the futures trading markets.

The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (speculators & large traders who speculate to realize trading profits) and nonreportable traders (usually small traders/speculators).
The Commitment of Traders report is published every Friday by the Commodity Futures Trading Commission (CFTC) and shows futures positions data that was reported as of the previous Tuesday (3 days behind).

All information and opinions on this website are for general informational purposes only and do not constitute investment advice.

Article by CountingPips Research

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