Friday May 4, 2018 - 22:22:21 GMT
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Commitment Of Traders Report For 1 May 2018 Register To Test Your Amazing Trader
Forex trading is all about stops. The Commitment of Traders Report (COT) can be an imperfect, but often useful, "sampling" of market positioning. I would prefer more frequent and precise readings, but we have to live with what we get. The data work for the purpose of getting an idea if traders are positioned long or short and if they are in large or small. Where and how large the stops may be is critical trading intelligence.
The data we monitor are the positioning of large traders who usually are thought of as the "smart money". These data usually may not correlate well with the the various retail trader statistics. Each set of data tells you different things about potential stops.
EURUSD net long positions had started to wind down modestly as of Tuesday's close a week ago. They fell again modestly in the latest week. Over the week the EURUSD has traded down sharply. The heavy blue line (once a week spots) provides a useful perspective on the support (or lack thereof) coming from the price action.
As the alternate reserve currency twin to the USD, keep in mind EUR positions are not just against the USD. EUR crosses vs. the JPY and GBP are critical. According to EZ PMIs, the European economy might be running out of steam.
The market USDJPY longs (short JPY) have been completely eradicated. JPY open interest usually tracks the USDJPY exchange rate. Keep in mind that the JPY often plays a special role as the financing currency for many long investment positions. The JPY is definitely being bought modestly whenever equity longs are unwound.
Net GBPUSD long positions should have fallen sharply in the back end of the week following a more dovish BOE and poor 1Q18 GDP. Last Thursday saw a poor PMI Servies reading. The current market seems to revolve mostly around the EURGBP cross, Brexit negotiation news, and Bank of England policies.
GBP pairs are more sensitive than most to UK domestic economic data. This characteristic makes it attractive to those of us who rely on active markets. We are also always keeping a close eye on the EURGBP cross as a barometer of flows in and out of the EUR. These flows often directly impact both units against the USD so it should always be watched by active traders.
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