Divergence between market positioning and yen futures prices continues to widen, with large speculators piling in new long bets and driving down net-short exposure.

Commitment from traders – from Tuesday 9e August 2022

  • Net short exposure to JPY futures fell to least bearish level since March 2020
  • NZD futures are about to switch to net long exposure
  • Big speculators have been the most bearish on AUD futures since March
  • Traders continued to close GBP shorts, sending net short exposure to its least bearish level since March

Japanese Yen (JPY) Futures:

There is a growing divergence between yen futures prices and market positioning. While the yen remains just off its 24-year low, net short exposure is at its least bearish level since March 2021. More than 27,000 gross short sales have been closed over the past two weeks, with 8,500 gross buy sales added. Gross purchases are also at their most bullish level since the pandemic. And that suggests traders don’t think the BOJ will maintain its ultra-loose monetary policy for as long as the central bank suggests. But it also means that the prices could be too low relative to the market positioning, or that the market positioning has slipped and it may need to be reversed. Because discrepancies between prices and market positioning rarely last too long.

New Zealand Dollar (NZD) Futures:

NZD futures are about to move into net long exposure for the first time since April. Admittedly, it was only net long for a single week (and by only +365 contracts), but that at least shows that the appetite for going short is almost non-existent, with net short exposure at -276 contracts. While the raw shorts have remained around the 16-22k level for the past few weeks, the raw shorts are slowly climbing to show the buying initiative of the big speculators. The RBNZ (Reserve Bank of New Zealand) is expected to raise rates by 50 basis points on Wednesday, so the focus will be on its OCR projections which were revised up from 3.5% to 3.9% in mid -2023. With house prices falling and growth concerns lingering, we may see a dovish upside.

Commitment from traders – from Tuesday 9e August 2022

  • Large speculators (and managed funds) increased their long net exposure to gold futures for a second week
  • Traders were the least bullish on WTI futures since February 2016
  • Traders shifted to net long exposure to platinum futures
  • Managed funds’ net short exposure to palladium and platinum futures fell to least bearish levels in May and June respectively

Gold Futures:

Big speculators (and fund managers) increased their net long exposure to gold for a second week in a row. This means that what started as a short-hedging rally now has some institutional buying initiative, and that adds a bit more weight to a bullish case for gold for the foreseeable future. And a supporting feature of the rally has been the lower US dollar, with yields and data suggesting US inflation has peaked.

WTI futures contracts:

Large speculators were the least bullish on WTI futures since March 2016 last week. At -43.1k contracts, this is the biggest weekly drop in net long exposure in 13 months. Raw longs have fallen to an 11-year low, and raw shorts are also on the rise. Large speculators are only 210,000 contracts long net, and managed funds are only 149,900 contracts net long. Against this backdrop, we would assume that any rebound in oil prices is simply part of a correction, as traders remain concerned about the outlook for demand given expectations of a recession. On the upside, falling oil prices are deflationary.

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