USD Long Far From Crowded, GBP Sentiment Deteriorates, NZD Flips to Net Short – COT Report

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

• USD Longs Not Yet Crowded
• GBP Sentiment Continues to Deteriorate
• NZD Flips to Net Short

USD Long Far From Crowded, GBP Sentiment Deteriorates, NZD Flips to Net Short – COT Report

In the week through to December 14th, net longs in the US Dollar grew by $1.16bln. Keep in mind, that the positioning data was before the FOMC meeting and thus the change in sentiment likely reflects market participants adjusting positions for a more hawkish Fed. As such, given the run-up into the Fed, the initial response to the decision to my surprise had been an unwind of hawkish positioning. That said, while the USD is the largest long on an open interest adjusted basis, positioning is far from crowded.

Sentiment in the Pound continued to deteriorate with net shorts rising by another $1bln, which had stemmed from a reduction in gross longs as opposed to a pick up in outright shorts. However, while political instability risks add another layer of concerns for the Pound, with the BoE now embarking on a hiking cycle, downside in the Pound may be limited from here, barring any notable deterioration across the equity space.

How did the Pound react to past BoE hiking cycles

Across the cyclical currencies, positioning in the New Zealand Dollar flipped to net short after a $1.1bln reduction in net longs. Despite this change in sentiment, risks are geared for more losses in the Kiwi vs Aussie, particularly with markets remaining aggressively priced on RBNZ policy tightening and thus leaving the bar high to surprise on the hawkish side. A reminder that this had played a large part in my thesis for expecting AUD/NZD upside in Q4.

Weekly FX Positioning

Source: CFTC, DailyFX (Covers up to December 14th, released December 17th)

The Analytical Abilities of the COT Report

How to Read the CFTC Report

US Dollar Positioning

Source: Refinitiv, DailyFX

GBP/USD Positioning

Source: Refinitiv, DailyFX

USD/CAD Positioning

Source: Refinitiv, DailyFX

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By Justin McQueen, Strategist, 21st December 2021. DailyFX