Weekly COT Report: Sterling extends short-covering rally
Matt Simpson January 10, 2022 10:57 AM
The British pound was the only major to close higher against the greenback last week, and speculative positioning suggests short covering remains the main driver.
As of Tuesday 4th January 2022
- Traders trimmed their net-long exposure to the US dollar by -$0.27 billion, taking bullish exposure down slightly to +$19.5 billion
- Long exposure to the US dollar rose to its highest level since October 2019 (although it is just at a 5-week high if adjusted for open interest)
- NZD futures were net short for a fourth week and traders were their most bearish on the Kiwi dollar since June 2020
- Short exposure to GBP futures fell for a second consecutive week as its short-covering rally resumed
Sterling extends short-covering rally for a second week
Traders remain net-short GBP futures, as they have done for over 9-weeks now. Yet more may be gleaned from looking at the inflection point of gross short exposure, as bearish positioning appeared to hit a sentiment extreme back in early December. Gross shorts have been trimmed for five consecutive weeks, and gross longs have been increased the past two as prices have rallied. So GBP now appears to be in a corrective phase on the weekly chart as traders reconsider their grim view of the Omicron variant, as it may not turn out to be as dire as originally feared one month ago.
Traders remain pessimistic on the Kiwi dollar
Considering RBNZ remain a relatively hawkish central bank it’s a little surprising to see NZD at net-short exposure with large speculators. But then we do have a hawkish Fed to contend with over the coming months, at which point we suspect yield differentials will matter again and favour NZD over USD. Over the near-term we note that gross shorts sit around 20k contract, and this is a level which has held fairly steady since November, so we have an initial clue that bears could being to lose momentum. That said, gross longs are also at their lowest level since April 2020 (and trending lower) so we’d want to see a pickup of long interest before calling a reversal on the weekly charts, but this is something to consider over the coming weeks or months.
As of Tuesday 4th January 2022
- Net-long exposure to copper futures rose for a second consecutive week
- Traders increased net-long exposure to silver futures to a 5-week high, although bearish price action since the report was compiled suggests many (if not all of these new longs) have been closed out
- Bullish interest also rose on platinum futures, with net-long exposure rising to a 6-week high
Copper bulls return to the table?
As noted above, net-long exposure to copper futures rose for a second consecutive week. Whilst it is still early days, we like how gross shorts have remained steady (lack of fresh bearish interest), and how the renewed bullish interest backs up our longer-term view that a base has been built around $4 in August and e we anticipate a breakout from its multi-month sideways range. What we would like to see in the weeks ahead to reaffirm this view is for bearish interest to decline whilst new longs continue to be initiated.
How to trade with City Index
You can easily trade with City Index by using these four easy steps:
Open an account, or log in if you’re already a customer
• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
- Search for the company you want to trade in our award-winning platform
- Choose your position and size, and your stop and limit levels
- Place the trade
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.