Currency Specs Continue to Favor the USD

The most recent COT report shows the currency specs maintained a net USD long of 354.3K, down a minor amount from 357.3K last week. Specs continued to favor the euro and the yen as their favorite short positions versus the USD. The yen short did come down about 17K contracts to 152.5K while there was no change in the euro short which remained at 211K. The open interest in all currencies where there was an active option trade with the exception of the C$ soared. We assume this is related to covered option strategies related to the expiration of the September options. Despite the big increase in the OI the positions did not change that much.

One of the more peculiar trades this week was in the pound. The pound had been undergoing a sell off for weeks. This sell off was hastened by a survey which showed the Scots might vote yes to succeed from Britain, On the sell off the small specs flipped their positions and went short the pound. Large specs went the other way and added to the long. The total spec long in the pound went up to 26.5K from 21.4K last weeks.

The popularity of the USD proved too much for the commodity currencies to handle. Specs had been short the USD and long the Canadian, New Zealand and Australian. Last week there long was 71.1K but it was reduced to 56.2K this week. Since the cut off date there has been serious pressure on the Aussie.

– US Dollar Index: There was not a lot of movement in the DI positions during the period. The total spec long did increase yo almost 40K from37K last week. Large specs increased their long and the small specs reduced theirs. Small specs remain, however, a 4.6 ratio long.

– Euro (EUR/USD): The open interest in the euro continued to surge, increasing almost 60K during the period to a total of 585K. Unlike previous increases in the OI, the total short position in the euro did not grow, but rather stayed at about 212K. The big increase in the OI came in the spreading/option category which increased by 38K. This would imply there is a significant increase in the covered option trading. Small specs are a 2.1 ratio short, and the large specs a 3.7 ratio short.

– British Pound Sterling (GBP/USD): There is a big difference of opinion about the direction of the pound. The pending Scottish election has put pressure on the pound and is has sold off hard. On the sell off the small spec has flipped to the short side, decreasing open longs and increasing shorts by 9.6K contracts. The large spec went the other way, and added 14.7K to their longs. The total net spec long increased to 26.5K. So far the small specs look to be the winner.

– Japanese Yen (JPY/USD): As anticipated by the yen specs, the yen sold lower to the USD. On the break there was profit taking by the large specs. The total spec short was reduced to 152.5K from 170K last week. Small specs remain a 3.7 short and the large specs a 6.9 ratio short.

– Swiss Franc (CHF/USD): The big jump in the OI is related to option activity. The total OI was up 17.4K, of which 14K was an increase in option/spreading OI. The total net short position increased to 32.8K from 31.9 last week.

– Canadian Dollar (CAD/USD): Small specs flipped back to the short side of the loonie, and it proved to be the right call as there has been strong USD buying in the last week. Large sspecs remain long the C$ and the total spec long in the C$ is a modest7K.

– New Zealand Dollar (NZD/USD): The market has not been kind to the large specs who have been consistently long in this very small market. They remain a 2.9 ratio long. The total spec long is 9.7K, down from 10.5K last week.

– Australian Dollar (AUD/USD): Longs in the A$ have been hammered during the last ten days. Most of the severe decline came after the September 9th cut off. Since there were still 39.5K remaining longs as of this date, liquidation of those longs may have caused the continued weakness. Small specs are about even but the large specs remained a 2 to 1 long.

Currency Commitments of Traders with Delta-adjusted Options and Futures Combined, data through September 9, 2014.