Speculators continued to unwind positions in the 'Trump trade' last week

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Speculative investors continued to express caution towards the so-called “Trump trade” last week, according to latest data released by the US Commodity Futures Trading Commission (CFTC) on Friday, with positioning in the US dollar and US treasuries continuing to be scaled back.

The CFTC’s latest Commitment of Traders (CoT) report, a snapshot of investor positioning as at the close of business each Tuesday, revealed that net long positioning in the US dollar declined for a third consecutive week, led by continued buying in the euro along with commodity currencies such as the Canadian, Australian and New Zealand dollars.

Net positioning is simply the sum of long and short positions held in an asset by speculative investors, in this case the US dollar. A net long position suggests that traders, collectively, are looking for further gains while a net short position indicates that the opposite outcome is expected.

According to Khoon Goh and Rini Sen, strategists at ANZ, net long US dollar positions were reduced by $US5.4 billion to $US21.3 billion last week, the largest weekly decline in five weeks.

The pair said that all currencies saw net buying versus the USD, led by the euro.

“Funds reduced their net EUR shorts by $US1.9 billion to $US12.3 billion, the lowest overall net short position since September 2016. JPY, GBP and CHF also saw net buying during the week of $US0.3 billion each,” they said.

Along with the euro, Goh and Sen noted there was also strong demand for commodity currencies, leaving net positioning in the Canadian, Australian and New Zealand dollars long for the first time in 18 weeks.

“Funds added $US1.3 billion and $US1 billion to turn their net short AUD and CAD positions to net long positions of $US0.9 billion and $USD0.5 billion respectively,” they said. “Unlike last week, NZD also saw net buying of $US0.3 billion to take its overall net long position to $US1.2 billion.

And, while the US dollar recovered late last week after the cutoff date for the CFTC report, Goh and Sen say “the weaker than expected advance Q4 US GDP print could see a further paring back of net long dollar positions heading into the 1 February FOMC meeting”.

Perhaps explaining the ongoing reduction in bullish US dollar bets, speculative investors continued to unwind net short positioning in US treasuries for a second consecutive week, a sign that traders are perhaps growing cautious on the prospect of a continued lift in US bond yields in the period ahead.

This chart from ANZ shows the relationship between net positioning in US 10-year treasury notes from speculative investors to movements in US 10-year bond yields.

When calculating speculative positioning, ANZ says that non-commercial positions reported by the CFTC are useful as they “seek to profit from movements in the asset price as opposed to hedging business activities”.

In other words, it could be used to extrapolate broader market views on where a particular asset is heading.

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