With alarm, Bloomberg today reported "Hedge Funds Abandoning Dollar's Biggest Bull Run in a Generation" and continuing, "Large speculators cut net bullish positions on the greenback to the lowest in almost two years last week." For the Bloomberg journalists, they now assume the end of the bull market in the USD means we are headed for a bear USD period, and they then print quotes from money managers who agree with this theory.
"Hedge funds reduced net bullish positions on the U.S. currency versus eight major peers to 36,304 contracts as of April 5, the least since July 2014, from more than 420,000 contracts as recently as November, according to Commodity Futures Trading Commission data compiled by Bloomberg."
The analysis of what is now called the CFTC COT report had a different name when I started looking at the report, at least a decade before Bloomberg was founded in 1981. In those days there were no computers to speed up the data collection and reporting. Consequently the material was dated by the time it was published.
I still keep records of the COT in the currencies and a few commodities. My numbers will not coincide with the Bloomberg numbers because I include small specs as well as the large specs. In fact the hedge fundies are in that category until they reach a certain size position.
Many analyst of COT data miss the most important take away. A market generally rises when hedge funds are making buys, and it goes down when they liquidate. Last week I showed the total USD long was down to 53,011 contracts. This is a reduction from a high of 609,037 contracts on the report released 11 24 2105. With this amount of USD selling there should be no surprise which way the market was heading.
It is a mistake, however, to assume the USD will continue to be sold once the long is gone. But if the selling does continue the USD slide might pick up momentum. In
other words, there is a bigger market move when the position is being established. But if the selling stops, the bear market in the USD might be over, and a healthy relief rally will be a surprise.
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