CFTC COT: Forex Weekly Report 17-08-2020

U.S. Dollar IndeX

The slaughter continues, but somehow U.S. Dollar still alive ( I have an idea). With just a few exceptions, the U.S. Dollar was sold against world currencies. Now, one thing interesting to note is how all the attention if focused on EURUSD only, not only the attention also the money. I am writing for weeks now how the position is stretched for EURUSD and also how there lack of movement in other currencies like AUD and NZD. The conclusion I am drawing is the trading effort is being moved to EUR.

I calculated the change in net position for a synthetic U.S. Dollar index, replacing SEK for AUD+NZD, the result is interesting at least.  We can see that trading in other currencies is completely void, and what really matters now is what is happening with EURUSD. This is an uncharted region, but with a big caveat, we will know when the big move in USD and EURUSD is coming when we start to see money flowing again to AUD, NZD, GBP, CAD, CHF, and JPY.

 

The U.S. Dollar Index ( DXY) has a great memory for liquidity zones, the prices are now sitting at 2015 yearly high, this is a significant zone, a breakout to downside plus a decrease in open interest in currencies that compound the DXY and increase in EUR longs will push DXY to low of 2017 90.944 and with no doubts to 88.00 level after that. This will close the Trump cycle and, looking from Trump’s perspective is a great plan, because will leave him full of options if he wins the election again.

However, if we manage to hold [91.877-92.597] demand zone plus an increase in open interest in currencies that compound the DXY in price will rapidly rise to [96-97.4] price level.

EURUSD

As more and more longs are added to EURUSD some questions must be asked:

  1. Will we see another record on long positions?
  2. Why EURUSD uptrend stalled?

These are not an easy question to answer, and some readers may ask about these “records” and argue that they were never so long but the non-commercials net positions shorts were even bigger than the current longs record and “don’t you Leo said that money remains the same?” So what’s the difference between getting short of long, isn’t the margin used the same? Simple question, but not a simple answer, I could write a book about this, but to simplify, you must understand that non-commercials are simple coadjuvants in the market, commercials are the owners! Commercials that trade the long side are not the same that trade the short side. Some need to lock costs of productions and some need to lock profits from sales. One is interested in buying corn to produce alcohol and other is interested in selling the corn only.

The Non-commercials are extremely aggressive and I really think they are moving funds from one trading desk to another, and the true meaning of this is there’s a lot of money flowing out of EUROPE, why? Commercials are shorting EUR like the Eurozone is about to end, money is flowing back to Dollar, back to America. For how long this will continue it’s hard to say, but there’s a massive effort to keep EURUSD at current prices. Why? I don’t know too, but one thing I know for sure is cyclical is the preferred market behavior, and a big and fast selloff is looming EURUSD. My view from the past week reaming the same.

GBPUSD

Short non-commercials started to close positions taking some losses at these price levels. The pattern of decrease in open interest in happening here too, also you must have in mind that we are in a liquidity zone, pivot point, and with net positions virtually at zero anything is possible from here. This week Brexit talks are restarting, so what looks is nobody whats to bet to neither side. What looks to be a bullish pattern both in price and net position is purely a profit and losses realization to stay neutral going into Brexit talks.

Caution is the word for the pound now, as even the most informed players are neutral. Until we have further developments I have no bias, but the view from the last week remains the same. A possible peak in open interest can cause the pullback I comment in the previous CFTC COT Forex report.

CFTC COT FOREX GBPUSD CHART
CFTC COT FOREX GBPUSD CHART

AUDUSD  | NZDUSD

Comments for these two pairs were committed this week as they are doing exactly what I commented in the previous CFTC COT Data Forex Report.

USDCAD

The plan we create for USDCAD is working. Shorts getting closed, longs added, and commercials open interest increasing. Yet, I don’t see USDCAD doing the lift we are looking for. The economic health in Canada is increasing at a fast pace than in the USA. I don’t discard a visit to 1.31630 before we think about 1.3522.

USDCHF

It’s really hard to see USDCHF dropping from here. Non-commercials add shorts and in a blink of eye commercials absorb it. 23% change in net position for 0.38% change in price, that a huge absorption. If no new catastrophic event happens we can say the bottom is in.


 

What if the price drops more where Should I expect it to go!? If you look at the volatility table for the month of August this is what we should expect:

USDJPY

YEN is not making things easier. CFTC COT Data doing the move we were expecting, but it’s not what we are seeing in prices. What changed? At the end of last week, we have a bunch of good economic data coming from Japan. This can be punctual and only another buy opportunity, right now is hard to say, I need to see cot data that will be released on Friday. The long term outlook remaining the same from last week, but this week I am out of YEN.

Expected Levels for August based on Historical Volatility

Thank you

The last week was awesome, I received a lot of support messages! That really motivated me. The intention of this report is to collaborate with the community, add value to your trading, and give north for those that are completely lost. It’s working.

Tell me a little bit, how the report is helping you and also, in your opinion, how it can be improved? what can be added or modified? I am hearing.

Catch you all next week.

Best regards

Leo Hermoso.

3

Comments (2)

Héctor Manuel Samperio Islas

Hello Leo!
As usual, great analysis of the Forex markets!
It’s been kind of frustrating the lack of USD reaction after the big decline. However, I rely in your analysis of the COT report in order to take decisions about it.
Thanks for sharing! I can see the long hours in front of the screen and your hard work!
Saludos desde México!

Hello Héctor!

Tks a lot my friend for your support. This Week I will stay sidelines too. Let’s see what will happens next week.

Grande abraço do Brasil!

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