COT Report: Mixed Week in Commodities as Dollar Buying Continued
SAXO
2024-12-04Our weekly Commitment of Traders update highlights futures positions and changes made by hedge funds across forex and commodities during the week to last Tuesday, 26 November.
Forex:
In forex, speculators responded to continued USD strength, and for a tenth consecutive week - albeit at a slower pace - they further increasing bullish exposure against eight IMM futures and the Dollar Index. Overall, the combined dollar long reached USD 23.2 billion, the highest since July, primarily driven by selling of the euro (-13,500 to -56,000), sterling (-18,700 to -21,600), and the Mexican peso, where the net position returned to neutral. Partly offsetting these sales were short covering in the yen (+24,200 to -22,000) and the CAD (+29,600 to -154,000).
Commodities:
In the latest reporting week ending November 26, the Bloomberg Commodity Index rose by 0.6%, supported by strong gains in Arabica coffee and natural gas, which helped offset losses across the grains and precious metals sectors.
Managed money traders showed a relatively muted response to these developments, as indicated by the changes across various sectors. Notably, there was a broad reduction in grain positions, led by the soybean complex. Interestingly, despite a nearly 10% rally in Arabica coffee, there was no significant reaction from traders. This suggests that the surge toward a 1977 high was primarily driven by panic buying from roasters and intermediaries, which eventually peaked last Friday, followed by the contract's largest setback since 2021.
In energy, the natural gas surge attracted fresh demand, while crude oil positions were mixed.
In the metals sector, gold experienced renewed demand after weeks of net selling, while the silver net long position was reduced to a nine-month low. This adjustment leaves silver better positioned to respond to price-friendly developments moving forward.
What is the Commitments of Traders report?
The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.
Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators)
The main reasons why we focus primarily on the behavior of speculators, such as hedge funds and trend-following CTA's are:
They are likely to have tight stops and no underlying exposure that is being hedged;
This makes them most reactive to changes in fundamental or technical price developments;
It provides views about major trends but also helps to decipher when a reversal is looming.
Do note that this group tends to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a through in the market.
