Japanese Yen Short Covering Featured

Last weeks rally in the Japanese yen was in large part caused by short covering. In the futures and delta option adjustment long form of the COT report the net short spec position went from 118K to 92.5K. The spec short position remains large, but this was a significant weekly reduction.

The total net long speculative position was reduced from 69.8K to 13.1K last week. This is the smallest USD net long position since the week of October 28th, 2013. If the large long USD short yen position is excluded from the total net spec position, specs are then short the USD by 79.3K contracts. In other words the USD is the specs second favorite position behind the yen.

The biggest spec long is in the British Pound, going up to 70K from 62K in the prior report. Positive economic news just keeps coming in Britain. The pound versus the USD is trading above the 1.68 handle, however, the rate of sterling's advance has slowed. Is the bull pound market becoming exhausted?

• US Dollar Index: Last week the large specs flipped to the short side on the USD by a very slim margin, while the small specs remain long the DI. The only change in this week’s report is a minor reduction of the small spec long position. Combined the specs have a net long DI position of 4776 contracts, down from 7513 last week

• Euro (EUR/USD): Large specs remain long the euro and the small specs are short it. The total OI grew in the week, up to 308K as the large specs extended their long position. Total net euro long is up to 6690 contracts. Market action during the week favored the bears. Spreading, most of which are options are up to 7.4% of the total OI.

• British Pound Sterling (GBP/USD): The spec long position in the pound continues to grow. Combined the net long position is up to almost 70K, an addition or 8K new longs during the past week. The pound fundamentals continue favorable and the bulls are riding the trend. The large spec is now a 3.4 ratio long.

• Japanese Yen (JPY/USD): As we anticipated the strength in the yen during this reporting period took a number of shorts from the market. The total net short position dropped from 118K to 92.5K in the reporting period. Large specs remain a 6 ratio short. Spreading in the yen which represents mostly option trade is 7.9% of the OI which is contracting in size.

• Swiss Franc (CHF/USD): The OI was up by about 5K contracts as the specs were aggressive SF buyers. The total SF long is up to 17.178 contracts from 11,703 contracts last week. Large specs are now a 2 ratio long.

• Canadian Dollar (CAD/USD): Small specs reduced their short position to where they are about even, but the large specs remain a 2.3 ratio short. The total net short C$ position is now down to 37.8 from 43.5, and 63.7 four weeks ago. During most of this period the loonie has been getting stronger.

• New Zealand Dollar (NZD/USD): Speculators remain big bulls in the kiwi. Between the long and short players their gross long is 95% of the gross OI. The large specs are a 4 ratio long. It is not unusual to see the specs loaded on the long side of the NZ$ but it will be unusual if this ends well.

• Australian Dollar (AUD/USD): During the prior week, large specs flipped to the long side of the A$, and they added to this position during the most recent period. Small specs remain token shorts but the total net spec long position in the Aussie is up to 6.6K. The total OI in the A$ is small at only 112K.

Currency Commitments of Traders with Delta-adjusted Options and Futures Combined, data through April 15, 2014.