cot report analysis - in the fed we trust

8/2/2019 COT Report Analysis - In the Fed We Trust

1/11

Quant View COT Report Analysis 30-April-2012

Harel Jacobson, FRM ([email protected])

COT Report Analysis In the Fed We Trust (with

no bulls in sight)

The latest COT positioning report published on Friday paints a mixed picture of speculative

positioning across the different asset classes. The main takeout of the latest report is that

the leveraged community, ahead of last Wednesday's FOMC meeting, closed almost all of

the short UST positions. In other asset classes changes were relatively minor, as the

leveraged community struggles to find any catalyst for a move in positioning.

In FX, EUR bear trend of positioning seems to have stalled (or at least for now), with

positions reverse some of the downward move we saw the last two weeks. In the low-

yielding currencies, JPY and CHF positions continue to go nowhere, with a minor incline of

6,000 bullish contracts between JPY and CHF. In the Commodity Block AUD and NZD

positions were little changed last week, while CAD positions continue to move higher

(following the hawkish BoC statement and the expected rate hikes later this year). MXN

positions continued to decline (as the report did not capture the price action following the

recent Banxico rate decision). Perhaps the most interesting move in bullish positions was in

GBP, which saw the sharpest incline in bullish positions between the G10 currencies.

In Metals, No real change last week in positioning between Precious Metals and Industrial

Metal. The downtrend of positioning in Precious Metals continues (although to a lesser

extent than it was over the last two months). Industrial Metals continue to exhibit bearish

trend of positioning.

In US Rates, The leveraged community continued to position itself for a possible QE by the

Fed, with a massive incline of positioning in UST 2-year. Positions in UST 10-years

continued to incline, but to a lesser extent. At the short-end of the curve we saw little

change in positions, with the Fed Fund and 3-month EuroDollar positions inclining slightly.

In US Equities, Speculative positions in US Equities were little changed last week, ahead of

the FOMC meeting on Wednesday (as the report captured the change in positioning for the

week ending on 24-April). VIX speculative positions declined slightly last week, after the

recent uptrend.


2/11

Foreign Exchange

Which currency is the "Star" of the G10? Friday's COT report shows that the

leveraged community continues to position itself for a bullish trend in CAD and

GBP. While EUR positions were little changed last week, GBP positions moved up

significantly (toward the 88%ile of the last 1-year). CAD continues to be the shining

start of the commodity-bloc, following the recent flow of positive data from

Canada and the hawkish BoC statement (the OIS futures price in a 60% chance of a

hike within 6-months and a 60% chance of 50bp hike by the end of the year). With

the dynamic in G10 changing from focus on EUR, AUD and JPY toward the less

liquid currencies, it is interesting to examine the current heat map of the G10

space. To find outperformer in G10 we shall examine the positioning ranking and

the Trade-Weighted Index of each currency. As an arbitrary scale we shall look at

the %ile of the most figures against 1-year window.

As we can see, GBP and CAD are rank at the top of the currency space, while EUR

and low-yielding currencies rank at the bottom.

EUR positions were little changed last week, as shown in Friday's COT report, after

a two weeks' decline, which reversed more than half of the uptrend since the

beginning of the year.

EUR

GBP

AUD

NZD

CAD

MXN

CHF

JPY

USD

0

1

2

3

4

5

6

7

8

9

10

0246810

Rank-IMMS

pec.

Positions

Rank - Trade Weighted Index


3/11

Data Source: CFTC/Bloomberg

As one can see, the price action of the EUR/USD keeps on diverging from the IMM

positions. Although CFTC positions are only a fraction of the entire scope of

positions, it is usually a good proxy for the market position. The fact that the price

action has yet to pick up with CFTC positioning, perhaps, backs up the theory that

the EUR slowly becomes a funding currency, and therefore decouples from risk

sentiment. With no real developments from EU (neither positive nor negative)

EUR/USD is likely to stay range-bounding.


4/11

GBP net speculative positions continued to grind higher toward 1-year high, as the

leveraged community continues to put bullish GBP bets. As mentioned previously,

GBP becomes the new "star" (or at least for now) of the G10 space.


In the low-yielding block, JPY and CHF long positions continue to be little changed

from previous weeks.


As the report does not capture the change of positioning following the FOMC and

BoJ meetings, it will be interesting to see how the leveraged community reacted to

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

JPY and CHF IMM Speculative Positions

JPY IMM Spec. Positions CHF IMM Spec. Positions


5/11

the mixed signals sent by FOMC regarding the outlooks for the US economy and

possible QE.

In the Commodity Block the commonwealth currencies continue to move sidelines in term

of positioning, with no developments from china or RBA/RBNZ monetary policies.

CAD speculative positions continue to trend upward on the back of hawkish

statement by the BoC, which was perceived as a case for rate hike later this year.

OIS future now price in a 50% chance of hike within 6-months (from 30% before the

BoC meeting) and 60% chance of rate hike within 1-year (from 40% before the BoC

meeting).


MXN positions continued to decline (ahead of the Banxico rate decision), as the

leveraged community started to price in a rate cut (which turned out to be wrong,

-0.2

-0.1

0

0.1

0.2

0.3

0.4

0.5

0.6

-0.05

0

0.05

0.1

0.15

0.2

0.25

AUD and NZD IMM Speculative Positions

AUD IMM Spec. Positions NZD IMM Spec. Positions

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

-1

-0.5

0

0.5

1

1.5

2

2.5

CAD IMM Speculative Positions

CAD IMM Spec. Positions CAD 1-year OIS Swap


6/11

as the o/n rate was left unchanged). All in all, the uptrend in speculative long

positions in MXN continues to be intact.

Metals

Friday's report shows that the leveraged community reduced its long positions in

Industrial Metals significantly while did not reduce its positions in Precious Metals.


9.9

10.9

11.9

12.9

13.9

14.9

-1

-0.5

0

0.5

1

1.5

2

2.5

3

MXN IMM Speculative Positions

MXN IMM Spec. Positions USD/MXN Spot (Inverse)

0

0.2

0.4

0.6

0.8

1

1.2

1.4

0

1

2

3

4

5

6

7

Gold and Silver IMM Speculative Positions

COMEX Gold Spec. Positions COMEX Silver Spec. Positions


7/11

It is interesting to note that the price action of the Precious Metals continues to

diverge from the move of speculative positions. Looking at %ile basis, we can see

that the Precious Metals basket (equally weighted Gold & Silver basket) is

overvalued compared to the speculative positions (given the same look-back

window of 1-year).

In the Industrial Metals speculative positions continue to trend down (despite some

reversion of Palladium positions)

It is interesting to note that the price action of Platinum/Palladium basket (50/50

weights) tracks closely the trend of speculative positioning.

0

20

40

60

80

100

Precious Metals Basket and Positions

PM Basket (50/50 Gold/Silver) - %ile (against 1-year window)

PM Basket Spec. Positions - %ile (against 1-year window)


8/11

Copper positions continue to decline, although to a lesser extent. The move

continues to exhibit great correlation with the price action of the global mining

sector (tracked by FTSE All-Shares mining sector index).


0

20

40

60

80

100

Industrial Metals Basket and Positions

Platinum & Palladium Basket. (%ile vs. 1-year window)

Platinum/Palladium IMM Positions (Avg. %ile vs. 1-year window)

80

100

120

140

160

180

200

220240

260

280

-0.7

-0.5

-0.3

-0.1

0.1

0.3

0.5

0.7

Copper (Grade A) IMM Speculative Positions

Copper (Grade A) IMM Spec. Positions FTSE All-Share mining sector index


9/11

US Rates

Friday's report shows a continuation of the bull trend in UST 2-years and 10-years.

The latest bull trend in UST seems to be continuing with full force, with an incline of

140K contracts from the previous week. UST 10-years positions moved up, however

the move was relatively minor.


Short-End of the curve continue to move nowhere with the 3-month EuroDollar

positions consolidating around 0 and Fed Funds futures reversing some of the

downward move of previous weeks.

-8

-6

-4

-2

0

2

4

6

-3

-2

-1

0

1

2

3

4

5

UST 2-years and 10-years IMM Speculative Positions

UST 2-years IMM Spec. Positions UST 10-years IMM Spec. Positions

-30

-20

-10

0

10

20

30

40

-2

-1

0

1

2

3

4

5

6

7

8

Short-End IMM Speculative Positions

Fed Funds IMM Spec. Positions 3-month EuroDollar Spec. Positions


10/11

US Equities

Friday's report shows that the uptrend of speculative positions in US equities

continues, despite losing some momentum over the recent weeks. Nasdaq100 and

S&P500 positions declined slightly last week, however, these declines seem

relatively minor when looking at the large trend.


VIX speculative positions reversed some of the uptrend of previous weeks, which

may signal that the leveraged community expects lower volatility in the short term


-3

-2

-1

0

1

2

3

4

-8

-6

-4

-2

0

2

4

6

8

US Equity Indices IMM Speculative Positions

S&P500 IMM Spec. Positions Nasdaq100 IMM Spec. Positions

10

15

20

25

30

35

40

45

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

VIX IMM Speculative Positions

VIX IMM Spec. Positions VIX Spot


11/11

To conclude, as the market lack a game-changing event, positioning continues to

move sidelines. Last week did not capture the change of positioning post

FOMC/BoJ and Banxico rate decisions, so it will be interesting to see how the

leveraged community reacted to these events. The next report will probably

provide clearer picture about positioning in US rates and "safe-haven" currencies,

as well as Metals, after the Fed did not provide the market fresh hopes for further

monetary easing. If we look at the extremeness of long risk-correlated positions,

we can see that the uptrend we saw at the beginning of the year has lost some

momentum (with the flow of negative data). However, the leveraged community is

still positioned for a risk-rally.

Good Luck,

Harel Jacobson.

3000

4000

5000

6000

7000

8000

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10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

Risk-Correlated Bullish Positions

Risk-Correlated Spec. Positions (%ile vs. 1-year window) DAX Index

cot report analysis - in the fed we trust

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