Nasdaq Speculators Grow More Cautious

Equities continue to reach record highs once again despite cautious positioning trend by speculators. The US dollar continues to underperform amid falling yield differentials and a growing concern of a flatter yield curve. Meanwhile, short-term momentum traders continue to fight USD weakness, while speculators increase bets in the euro, pound, treasuries, gold and oil.

The Japanese yen quietly edged higher last week, extending its recent recovery off yearly lows (vs a trade-weighted basket of currencies). Speculative futures sentiment by large traders in the latest COT report slightly backed off the largest net short position for the year. This suggests that the crowded yen carry trade has obviously started to reverse, but due to its extremely short (79%) position, still has ample room to rally further.  Meanwhile, retail FX positioning data points out that the retail population has continued to sell yen, pushing the net long by percent down to 45% from 49% a week ago. The USD/JPY has clearly settled back into the middle of the 8-month range near Y111. While (daily chart) bearish momentum hints of near-term stability, the technical picture remains negative while 111.65/112.00 (USD/JPY) caps on a closing basis. 

Speculative euro positioning by non-commercial traders increased to near once again the largest net long position by (non-commercial) speculators on record. While, according to recent retail trading data, the retail population continued to be sellers into bouts of euro strength, but also seems to be buyers on pullbacks, which explains why the retail FX net long remained unchanged at 35% from a week ago. Meanwhile, the technical picture has improved for the trade-weighted euro, marking a higher base at a relatively high level within the last 6-month trend up. The bullish momentum in speculative sentiment combined with a positive technical backdrop, together with a hint of a re-test of the EUR’s 2017 highs especially vs the GBP & USD.

British pound speculative (bullish) sentiment rebounded significantly once again, according to most recent COT report. Large speculators upped their long positions substantially, allowing for the overall (net long) position to advance to 50% from 48%. Meanwhile, the retail FX population continued to scale back their net long position of the recent 6-month high at 59% (Nov 3rd) to just 45% (as of this writing). While these bullish forces of sentiment are typically bullish for the GBP, recent price-action suggests that weekly technical momentum has stabilized. A slightly upwardly tilted rectangle pattern has emerged, highlighting a solid range between 1.3080 & 1.3340 has formed. That said, if  1.32 (GBP/USD) continues to provide support on a (daily) closing basis, attention will remain on the upper end of the range at 1.3340.