The dollar is less and less attractive to speculators

10.09.2019 10:34|Daniel Kostecki

The American currency during the last wave of strengthening set new high this year, and the dollar index climbed to levels recently observed in May 2017. Since the beginning of the year, the dollar has risen by about 4 percent. In turn, since the beginning of 2018, when the dollar rally began, USD gained about 12 percent.

The currency market is characterized by less volatility than the stock or commodity market, hence it is possible that such percentage changes do not make a big impression, but it should be remembered that as a rule there is a financial leverage in the forex market, which may increase the percentage changes - according to the investor's assumptions. Leveraged funds belong to investors using leverage. This is the category specified by the American CFTC commission in COT reports, whose task is to present what their open positions on futures contracts look like - including the US dollar index contract.

Leveraged funds are also said to be speculators, i.e. they are mainly interested in potential profit resulting from exchange rate changes. And so, until the beginning of 2019, the funds increased their exposure to long positions in the dollar by increasing net long positions on futures contracts (long positions that could earn on USD strengthening exceeded short positions). In January 2019, leveraged funds had over 25,000 long positions more than short. It was a local extreme.

Since then, net long positions have started to fall, according to recent data to be at the lowest level since July 2018. From over 25,000 net long positions fell to just 770. It is worth noting that at that time the US dollar index set new two-year high.

Leverage funds net long positions and USD index

Leverage funds net long positions and USD index. Source:

Such a large divergence between the positioning of speculators and USD may attract attention. History, which of course does not have to repeat itself, shows that divergence has often led to a long-term trend change. Leveraged funds have recently even been selling new highs, opening more and more short positions, which could cause the red warning light to light up with regard to the current strength of the dollar.

Daniel Kostecki, Chief Analyst Conotoxia Ltd.

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

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