The Euro has been range bound for nearly 18 months; stuck between $1.06 on the low side and roughly $1.17 on the high side. While the Euro remains stuck, now trading a little over $1.10, there has been growing interest by the commercial traders to own the Euro following the Brexit vote.
The Australian Dollar has slid nearly 9% in just the last month. We were exceptionally suspect of the rally that took place between February and April, as we didn’t see commercial trader confirmation of commodity demand, Australia’s primary industry, supporting higher commodity prices going forward. In fact, our data sources made us suspect of the entire metals and energy rallies we’re currently seeing come to an end. This is one of the primary values of tracking the Commitment of Traders (COT) report. It provides a tally sheet for fundamental supply and demand. Recently, we’ve seen some commercial traders nibbling at the long end of the Aussie Dollar and, given its recent decline, we feel it is due for a tradable, short-term pop.
The Japanese Yen’s rally since their move to negative interest rates has been an economic phenomenon that I simply can’t get my head around. Perhaps a case of the government not taking more is akin to losing a foot rather than the entire leg? I suppose my lack of understanding is one of the reasons I follow the collective actions of the commercial traders in the commodity markets. While any individual can be wrong at any given moment, the commercial traders, as a group, have a knack for having the right position on at the right moments. Whether by research or algorithm by hook or by crook, there is little question in our minds which group we should be following. Today, we’ll update you on their most bearish position in the Japanese Yen in more than six years.
We’ve been watching the Japanese Yen’s movement closely this year as it has gained strength against the U.S. Dollar in spite of the actions of the Bank of Japan and their explicit commitment to weakening their currency across global markets in order to prop up their export driven economy. We’ll refer to our story from two weeks ago to provide the deeper history. In the meantime, we’ll update a few data points that should continue to keep you watching for a dramatic turn in the Japanese Yen vs U.S. Dollar currency pair.
The Commodity Futures Trading Commission publishes a weekly report entitled, “Commitments of Traders.” This report breaks each domestic futures markets’ participants into four main categories – large speculators, small speculators, index traders and commercial traders. Our research has shown a consistently significant advantage in following the trend of the commercial trader group. This week, we’ll look at its application to the Canadian Dollar over the last year and what it says about our current position in the market’s cycle.
The Canadian Dollar was trading above $.94 as recently as June. This has provided a clear picture of what can happen to an unevenly balanced economy whose currency value has become pegged to any individual sector. The global economy slow down and the associated decline in oil has absolutely pounded the Canadian Dollar to the tune of a 15% haircut in six months. That’s a very large move in a first world currency. Fortunately, we can use the commercial traders’ forecasts derived from the CFTC’s weekly Commitment of Traders report to keep us on the look out for the big moves and out of harm’s way.
The first point to make is that we only take trades in the established direction of the commercial traders’ momentum. Therefore, we spent the first half of the year looking for selling opportunities as the commercial traders sold more than 100,000 contracts through June of 2014 between $.89 and $.93 cents to the U.S. Dollar.
You can see on the chart below that commercial traders were quick to cover a little more than half of their short position through fall’s decline between $.87 and $.91 cents to the Dollar. This left them comfortably short for most of the decline and leads us to our current situation.
Commercial traders now appear to be once again interested in the long side of the Canadian Dollar trade. Their recent purchases of approximately 15,000 contracts has been strong enough to turn momentum’s tide and put us on the lookout for buy signals like the one generated last night. We’re not sure how all of the global banking variables are going to sort themselves out over the coming year but, we do see this as a supported trading opportunity on the long side of an oversold first world currency.
The USD Index – A Small Washout Coming? – Our Piece for TraderPlanet