Recent market positioning data from the Commitment of Traders (COT) report suggests that the bearish momentum in EUR/USD and commodity FX may be showing early signs of fatigue. While the U.S. dollar remains strong, driven by macroeconomic trends and policy expectations, subtle shifts in positioning indicate caution among traders betting against these currencies.
EUR/USD: Early Signs of Stabilization?
The EUR/USD pair, which has faced sustained pressure from a strong dollar, might be nearing a turning point. Futures data reveals that large speculators are reducing their net-short positions, signaling a possible easing of bearish sentiment. Although the dollar has performed well due to inflation concerns tied to the incoming Trump administration, this theme may lose momentum once policy clarity emerges.
Despite the pair trading just 271 pips above parity, breaking below this critical level is expected to be challenging. Traders may grow cautious as the euro approaches this threshold, potentially leading to profit-taking and a moderation of downward pressure. While EUR/USD may not see a swift recovery, the slowing pace of decline suggests a period of consolidation could be on the horizon.
Commodity FX: Signs of Bearish Exhaustion
Currencies tied to commodities, such as the Australian dollar (AUD), Canadian dollar (CAD), and New Zealand dollar (NZD), remain under pressure against the U.S. dollar. However, futures data indicates signs of exhaustion in bearish positioning.
Large speculators have maintained net-short positions on AUD/USD for a fourth consecutive week, though the pace of bearish exposure growth has slowed. Managed funds have also reduced their net-short positions, creating a divergence that points to caution among traders.
NZD/USD futures have reached record net-short positions for a fourth week, suggesting extreme bearish sentiment. Historically, prolonged streaks of record-high or record-low positioning are often followed by reversals, hinting that the trend may soon weaken.
In CAD futures, a divergence between falling prices and reduced net-short exposure reflects hesitancy among traders to continue shorting the currency. This hesitancy could signal a shift in sentiment, especially if broader market conditions change.
Metals Futures: Rising Bullish Sentiment
Gold, silver, and copper futures saw an increase in net-long positions last week, reflecting renewed interest from large speculators. Gold experienced a notable rise in speculative volumes, marking the first increase in four weeks. However, the rally appears to have lost momentum, with prices beginning to trend lower.
Silver futures also benefited from increased long positions and a reduction in shorts, although the recent drop in prices at the week’s open suggests caution is warranted. Copper futures saw a resurgence in net-long positioning as prices climbed out of a recent compression range, supported by stronger market demand.
WTI Crude Oil: Continued Strength in Long Positions
WTI crude oil futures continued their upward momentum, with net-long exposure among large speculators hitting a 25-week high and managed funds reaching a 66-week high. This bullish sentiment is supported by a strong U.S. economy and stimulus measures from China, as well as geopolitical factors such as increased sanctions on the Russian oil industry.
While speculative volumes have risen alongside prices, net-long exposure remains below historical extremes, leaving room for further growth. If oil prices continue to climb, inflation expectations could rise, adding another layer of complexity to global economic dynamics.
Outlook for Traders
The data from the COT report highlights shifting sentiment in key currency and commodity markets. While the U.S. dollar remains dominant, emerging signs of reversals in EUR/USD and commodity FX, coupled with bullish trends in metals and oil, suggest that traders should remain vigilant. As market conditions evolve, these early signals could pave the way for significant opportunities or challenges in the months ahead.
