Speculators' Short in USD Futures Soars

The aggregate net short positions in the USD soared to 94,712 contracts, up from a nominal short of only 453 contracts in the previous week. Again, the big increase of USD shorts came against buying of the commodity currencies, specifically the Canadian and Australian Dollars.

As we approach expiration of the September futures contracts, we suspect much of the buying of the Canadian and selling the USD has been for hedging purposes. If so, these positions will likely be used for pricing of export contracts of goods and materials, and will be liquidated. Monday, the long C$ short the USD futures amounted to 129, 911 contracts, and the total OI was very large, 267,371 contracts. Contrast this to the C$ position on July 24th, when the pair traded above 1.02, the OI was a mere 122,423 contracts, and the specs were short 1622 contracts of the C$. Perhaps we are getting close to a sell off in the C$.

There was also some noticeable selling of the USD versus purchases of the yen and the pound. The pound buying came with a 25% increase in the open interest.

Again we had another week of liquidation of the big short in the euro, and its first cousin, the Swiss franc. This week, the euro short went down from 131.6K to 118.2K. The drop in the SF was from 14.7K to 8.7K. The late-week 300-point rally in the euro probably took out more euro shorts.

• US Dollar Index: There was almost a 10% increase in the OI caused mostly by the large specs. They added 7.5K to their longs and 8.3K to their shorts. The large spec remains a 2.9 ratio long the DI. Small specs are not actively involved in the DI.

• Euro (EUR/USD): Specs continued to reduce their euro short position in an orderly fashion taking the total net spec short down to 118.2K from 131.6K in the prior week. The large spec remained better than a 3 to 1 ratio short. The cut-off day for this report was the Tuesday before the market started a 350 point rally, so the next report should show additional short liquidation. Spreading is over 10% of the total OI which was 373.9K in the euro.

• British Pound Sterling (GBP/USD): What is going on in the pound? The OI went up 46.6K to 188.7K. Commercials increased their long and short positions and flipped to the short side. Small specs are long the pound by approaching a 2 ratio. while the large specs are small shorts. Since the cut-off date for this report, the market actions have favored the longs. The increase in the commercial activity may represent pricing of export or import contracts in the September contract which expires this week.

• Japanese Yen (JPY/USD): There was a modest growth in the spec net long positions, as they grew from 18K to 24.8K. Large specs are long the yen and the small specs are short. Large specs are not better than a 2 ratio long.

• Swiss Franc (CHF/USD): The total spec net short position in the SF dropped to 8654 contracts from 14,722 in the previous period and is down from almost 30K contracts four weeks ago. Large specs are almost a 2 to 1 short, but the small spec has flipped to the long side.

• Canadian Dollar (CAD/USD): The OI in the C$ soared to 267K in the reporting period, up 78.7K in the week. Large specs are now a 9 ratio long, and the small spec is a timid 2 to 1 long. Most of the surge in the OI was caused by commercial activity, increasing longs by 20.9K and shorts by 74.3K. It is our guess this activity represents pricing of export contracts and will be liquidated with expiration of the Sept contract. Although we do not cover the Mexican peso futures contract, last week the OI surged by 86.5K to 309.2K total. Mexico, as part of NAFTA, probably has some pricing activity also.

• New Zealand Dollar (NZD/USD): There was a small reduction in the large spec long position but they remain almost a 4 ratio long. Small specs added to their position and are now long better than a 2 to 1 long.

• Australian Dollar (AUD/USD): Large spec continue to be bullish on the A$ and their net long is almost a 3 ratio. Small specs are long, but quite modestly. The total net spec long increased to 75.5K. The specs reduced both long and short positions while commercial increased longs and shorts in preparation for expiration of the Sept contract.

Currency Commitments of Traders with Delta-adjusted Options and Futures Combined, data through September 11, 2012