Currency Traders Reduce Positions

. Currency futures traders were busy reducing positions in the first week of the New Year. The collective reduction was 42K contracts but there was no liquidation in all contracts. Most of the liquidation came in the euro, pound and the yen. Specs did add to their long position in the AUD and the NZD resulting in increased OI in those two currencies.

The total USD short position was reduced to 165.9K from 183K in the previous week. The biggest reduction came in the DI contract when the specs flipped from a short to a long position resulting in a reduction of the short by 18.8K. The other significant reduction came from specs who reduced their long pound position.

The so-called commodity currencies continued to appeal to the specs. The total long went up to 212K contracts. There was additional buying in the CAD, AUD, and the NZD.

• US Dollar Index: Both size specs flipped their position to the long side of the DI during the period. The total long is 7.5K versus a short of 11.4K last week. The small spec, not normally a big player in this market , moved decisively to the long side, and is now a 1.7 ratio long.
• Euro (EUR/USD): Small specs have flipped to the short side of the euro and are short about 2.9K. The large spec is a nominal short, about 8.3K. What are the chances some of these new shorts were covered on last week's late rally? The open interest dropped by about 10%. There was liquidation in the spreading, which is mostly options, but spreading still remains large at 8.3% of the total market.
• British Pound Sterling (GBP/USD): There was a reduction in the long positions in the pound by the specs, but they remain long by a total of 42.5K contracts. This is down from 56.8K contracts the week before. The pound has been a choppy sideways trade that has not rewarded the longs, so we would look for more liquidation and more selling.
• Japanese Yen (JPY/USD): Both the small and large specs are short the yen by better than a 3-to-1 ratio. They modestly reduced their collective short to 117.2, from 122.9K last week. The OI is quite large in the yen and the market action continued to reward those with short positions. Spreading is large, 9.1% of the total market.
• Swiss Franc (CHF/USD): Small specs hold a very large long position, about a 3-to-1 ratio, in the SF. The total OI is 48K in the SF, and the small specs are long almost half at 23.2K. With the SF pegged to the euro, this positioning seems an unusual way to sell the USD.
• Canadian Dollar (CAD/USD): The large spec in the loonie is convinced. He's long an 11.1-to-1 ratio or 48.9% of the 144K total OI. This is little-changed from last week. The small spec is also long by a 2.5 ratio.
• New Zealand Dollar (NZD/USD): Unlike all of the other currency contracts, the OI went up in the NZD by 2K contracts. Small specs are a 2.5 ratio long and the large spec is a 3.6 ratio long. The bull market in the kiwi continues, so the longs are making money.
• Australian Dollar (AUD/USD): Specs continue to buy the AUD. Their total long position is up to 98.5K contract from 92.1K last week. Large specs are a 3 ratio long and the 2-to-1 long. The OI is large as the big specs buy to take a position in a commodity currency. The market action in the aussie has been strong for the past several weeks, but we are now chewing into resistance.