US Dollar Crowded Shorts at 9 Year High, Beware FOMO Traders

US Dollar, EUR/USD, GBP/USD, COT Report –Analysis

US Dollar Net Shorts Largest Since May 2011
GBP Shorts Slashed as BoE Pushes Back on NIRP
Kiwi Positioning Suggest Traders Were Surprised by Dovish RBNZ

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Source: CFTC, DailyFX (Covers up to August 11th, released August 14th)

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US Dollar Crowded Shorts at 9 Year High, Beware FOMO Traders – COT Report

In the week to August 11th, the theme of USD selling continues to dominate with investors raising their short exposure to the US Dollar yet again. Net shorts increased by $3.2bln against G10 currencies to $32bln, marking the largest short bet in the greenback since May 2011. However, I am cautious in chasing the US Dollar lower in the near term given the extreme positioning. That said, another leg lower in the greenback will be contingent of key topside breaks in the Euro and Sterling through 1.1900 and 1.3200 respectively.

Speculators had appeared to buy the dip in the Euro, with the move towards the low 1.17s met with an increase in net longs of $2.6bln to $29.3bln. In turn, while outright long contracts in the Euro may be at a record, on an open-interest adjusted basis, positioning has yet to surpass the 2018 peak. Alongside this, the Euro has been consolidating between 1.1700-1.1900 in recent sessions.

Bearish sentiment in the Pound has eased further after net shorts were cut by $972mln. This had come amid the BoE pushing back on NIRP expectations. As such, with front-end rates unwinding NIRP bets, this has provided support for a more constructive outlook in the Pound and thus speculators hold a neutral bias.

Across commodity currencies, Canadian Dollar net shorts hover around a 2-month high after a $480mln increase in bearish bets. However, with the risk environment remaining supportive for CAD, a squeeze in positioning may see the trend in Loonie persist in the short-term. Little in the way of positioning changes in the Kiwi, suggesting investors were surprised by the RBNZ’s dovish monetary policy decision. In turn, this paves the way for further weakness in the Kiwi against the AUD and CAD.