Weekly COT Report

VIX net-short exposure hits an all-time record
EUR traders extend net-short exposure to their most bearish level since December 2016.
GBP flips back to net-short after a 1-week hiatus to the long side
NZD net-short exposure is its most bearish level this year

Matt Simpson, CFTe, MSTA CityIndex

Traders continue to bet big on low volatility as net-short exposure hit an all-time record last week. Furthermore, its 3-year Z-Score is -3 standard deviations and long/short ratio is its lowest since February 2011 to further suggest we could be headed for a sentiment extreme. However, such red flags can lead inflection points by weeks or even months and it’s also worth noting that over the past 30-years, the VIX has closed lower in April and May 62% and 65% of the time, respectively. And as the VIX remains above record low, perhaps we’ll see the VIX fall further before an inflection point is met.

EUR traders extend net-short exposure to their most bearish level since December 2016. 10.9k gross shorts were added and EUR/USD broke to a 22-month low the day after the COT data was compiled (which is close Tuesday of each week). However, we’re not seeing any real signs of a sentiment extreme within the data which suggests EUR/USD could continue to be favourable to bears as the trend develops.

NZD net-short exposure is its most bearish level this year. In the face of a stronger USD and no immediate signs of a sentiment extreme on NZD positioning, we remain bearish on the Kiwi dollar as we head towards RBNZ’s meeting next week.

Silver flips to net-short exposure
WTI net-long exposure hits a fresh 6-month high
Traders are the most bearish on natural gas since September
Copper holds on to net-long exposure, yet overall traders appear undecided with a near 50-50 split between long and short contracts.

Silver dips into net-short exposure for the first time this year, fuelled by a closure of longs and addition of shorts. However, by just 110 contracts it almost seems negligible and with prices coiling above support we could see prices rebound before tracking large speculators and managed funds lower.

WTI net-long exposure hits a fresh 6-month high by Tuesday of last week, yet it appears prices are now correcting from highs followingFriday’s sell-off. We suspect the trend will eventually break to new highs, given that 1 and 2-year Z-Scores remain beneath +2 standard deviations and we’ve seen a healthy flow of longs added whilst shorts covered in an orderly fashion. Yet, over the near-term we could see some longs shaken out as prices correct lower – so let price action be your guide.

Author

Matt Simpson, CFTe, MSTA

CityIndex

Matt Simpson is a certified technical analyst who combines charts and fundamentals to generate trading themes.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.