"EUR/USD Net-Short Exposure Hits 4-Year High: Latest COT Report Insights"

Latest Commitment of Traders Reports

Market Positioning from the COT Report – Tuesday, 10^th December 2024:

• Traders showed a net-long position in the US dollar of $24.6 billion last week, marking the highest bullish sentiment in seven months.
• Net-short positions in EUR/USD futures among large speculators surged to a four-year, eight-month peak.
• The Japanese yen continued its net-long status for the second consecutive week among significant speculators and managed funds.
• Large speculators reduced their net-long exposure to AUD/USD futures, reaching an 11-week low, while asset managers raised their net-short positions to a 16-week high.
• Long positions in gold futures increased for the third consecutive week among traders, reaching a seven-week high.

US Dollar Positioning (IMM Data) – COT Report:

The US dollar index displayed a bullish reversal pattern known as a morning star last week. Market sentiment appears to support a move above the 14-month high established three weeks ago. Traders maintained a long position in the USD, totaling $24.6 billion, reflecting the strongest sentiment in seven months. Asset managers slightly increased their net-long positions in the US dollar index, adding 707 contracts, all fresh longs. It is important to note that this net-long exposure among asset managers isn't at a sentiment extreme.

EUR/USD (Euro Dollar Futures) Positioning – COT Report:

Large speculators amplified their net-short positions, reaching their most bearish stance in four years and eight months. They also increased gross shorts for the fourth week, hitting a two-year, three-month high. Despite this, sentiment is not at an extreme, suggesting potential further downside as we approach 2025, with a possibility of moving below parity. If there's an influx into the yen, shorting EUR/JPY could be a viable strategy for the upcoming year.

JPY/USD (Japanese Yen Futures) Positioning – COT Report:

Asset managers have shifted to a net-long stance, while large speculators maintained their net-long position for a second week. However, combined speculative volumes have declined for the third week, indicating that short covering is driving the net-long status. Given that yen prices have weakened for two consecutive weeks, there is uncertainty regarding whether traders will continue to hold net-long positions, barring a hawkish surprise from the BOJ.

Commodity FX (AUD, CAD, NZD) Futures – COT Report:

Traders adopted a more bearish outlook on commodity FX futures last week, as both trader groups increased their net-short exposures to NZD and CAD futures while cutting back on net-long exposure to AUD futures. Large speculators and managed funds expressed their most bearish sentiment on NZD/USD futures in the past five years. Although this may suggest a sentiment extreme by recent standards, there was a net-short position that was approximately 30% greater back in 2019. Open interest in CAD futures hit a record high and net-short positions are nearing this record among both trader groups, potentially indicating a sentiment extreme.

The Australian dollar approaches a break below 63 cents, with large speculators dropping their net-long positions to an 11-week low, while asset managers raised their net-short exposure to a 16-week high. This situation suggests that neither camp is at a sentiment extreme, raising concerns about the potential for the Australian dollar to fall into the 50s next year.

Metals Futures (Gold, Silver, Copper) Positioning – COT Report:

Managed funds increased their net-long positions in gold, silver, and copper futures, while large speculators only bolstered their net-long stance in gold. It is essential to maintain the view that gold prices are unlikely to surge to new record highs from current levels, and we still might be experiencing a retracement from the previous record highs, which could lead to another downward leg.