Market Sentiment

We’ve seen a vast reduction of net-short exposure to yen futures over the past four weeks. And with the yen rising over 4% since Tuesday's close, it’s likely large specs are already net long.

The yen has flourished in a risk-off environment with the added benefit of a dovish Fed and renewed bets of a BOJ hike. Commodity FX and metals were also dragged lower in the carnage.

Gold futures traders waded into the metal ahead of the record high set last week. But if we adjust large speculative positioning for open interest, it turns out they reached a record level of bullish exposure five weeks ago.

Large speculators surged into GBP/USD long bets last week, pushing net-long exposure to a record high and at the fastest weekly pace since records began. They also continued to trim net-short exposure to yen futures for a second week, after it nearly reached a record high of its own.

Large speculators flipped to net-long exposure to EUR/USD futures after a 2-week hiatus, whilst AUD/USD breached the bullish threshold for the first time in three years according to the commitment of traders report (COT).

Large speculators were on the cusp of reaching a record level of net-short exposure to yen futures last week, whilst they're also getting close to reaching net-long exposure to AUD/USD futures.

Large speculators flipped to net-short exposure to EUR/USD ahead of the French election. Open interest on CAD futures fell at its fastest pace in nearly one year as the sentiment extreme we warned of plays out. Net-long exposure to AUD/USD futures fell to a 3-year low, and prospects of net-long exposure are now on the horizon with the potential for an RBA hike.

Bears were busy last week as they piled into shorts against EUR/USD and the Dow Jones, and also reached a record level of net-short exposure to the Canadian dollar. And this was beneficial for USD bulls.

EUR/USD futures traders are on the cusp of flipping to net-short exposure, and managed funds are increasing their short exposure to gold and crude oil.

Net-short exposure to yen futures rose to a 16-year high last week, and now within reach of its record. Asset managers appear to be on the right side of the US dollar trade, with large speculators remaining net-short despite the dollar's rally. Net-long exposure for oil and gold futures continued to trend higher, but neither are at levels which screams sentiment extreme. And asset managers are on the cusp of flipping to net-long exposure to the VIX.

The commitment of traders (COT) report shows how large speculators are positioned across futures markets on the CME exchange.

An increase of bearish bets against AUD/USD pushed net-short exposure to a record high among large speculators.

With a BOE and FOMC meeting pending and net-long exposure for GBP/USD at or near a sentiment extreme, I cannot help but wonder if the pound it due at least a pullback. I also take a closer look at the US dollar index (DXY), gold and the Nasdaq 100.

The reversal on USD/JPY did not come without warning, as traders had reached a record level of net-short exposure. And whilst USD/JPY may be due for a bounce, further downside potential remains.

Short exposure to the Japanese yen continues to venture towards the extreme, which suggests USD/JPY could fast be approaching a reversal.

Traders remained net-long US dollar index futures last week, although asset managers have the more convincing bullish view for the dollar.

With the USD showing signs of a potential pullbacks and JPY futures nearing a potential sentiment extreme, USD/JPY may well struggle to break and hold above 152. EUR/USD also looks set to bounce despite lower net-long exposure, and gold future may struggle to hold above $2000 given the rise in short and trimming of long bets.