Key points:
- Our weekly Commitment of Traders update highlights futures positions and changes made by hedge funds across forex and commodities during the week ending Tuesday, 27 January 2025.
- In forex, speculators turned heavy sellers of USD after the greenback slumped 2.5% to a four-year low
- Commodities saw a notably and continued rotation from hedge funds out of surging metals, into energy and grains
- The WTI and Brent combined crude long reached an August high while the silver long slumped to a two-year low
- In agriculture, the dominant theme was short covering, led by grains, as well as ongoing demand for livestock
Forex:
In forex, speculators responded to a dramatic 2.5% slump in the value of the dollar to a four-year low by turning heavy sellers, the result being a jump in the combined dollar short versus eight IMM futures from near flat to USD 8 billion. The move was primarily driven by strong demand for the euro (USD 3.1bn), Canadian dollar (USD 1.9bn), and Australian dollar (USD 1.5bn), with the latter flipping to a net long for the first time in 14 months.
Commodities
The weekly COT update, covering managed money positioning across 25 major commodity futures markets, highlights a continued rotation out of metals as hedge funds reduced long exposure amid a sharp rise in volatility, while reallocating capital into energy, with rising geopolitical tensions driving a combination of short covering and fresh long positions.
The combined crude oil long reached 276k contracts, highest since August, and up from near flat at the end of December. The silver net long slumped to a two-year low, leaving funds with plenty of room to re-enter once volatility normalises and the technical outlook improves, both will probably take some time following Friday's blowout.
In agriculture, the dominant theme was short covering, led by grains. This reflected mounting weather-related crop concerns, support from firmer energy prices via the biofuel link, and not least a 2.5% decline in the US dollar during the week. Elsewhere, the livestock sector continued to attract demand with funds holding a combined long in cattle and hogs valued at USD 17.4 billion, while the overall value of grain sector remains a short exposure of USD 4 billion.
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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 other Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other Forex: 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.
Published by:
Dominic Weston