Forex:
In the forex market, speculators sold USD at an accelerated pace, leaving the gross long versus eight IMM futures down 15% on the week but still at an elevated level of USD 26.5 billion. All the major currencies, except EUR, saw net buying, led by strong demand for JPY, which lifted the net long by 191% to a four-month high at 55k contracts. However, besides the JPY, only a small net long was held in MXN, while the remaining currencies continued to be traded with a short bias, most notably CAD and EUR.
Commodities:
Six weeks into 2025, the commodities sector remains strong, with the Bloomberg Commodity Total Return Index trading at a 25-month high and showing a year-to-date gain of 7.7%, outperforming both the S&P 500 and the MSCI World Index by a decent margin. What is particularly notable so far is the broad nature of the rally, with all sectors showing gains, led by softs and precious metals. The top five BCOM members are Arabica coffee (+29.5%), US natural gas (+16.7%), HG copper (+14.7%), silver (+13.4%), and gold (+10.4%).
Part of the strong performance in the mentioned metals market, which are all based on New York futures prices, is due to recent squeezes amid fears over the impact of US import tariffs on key metals, which also include platinum. Last Friday, for example, the High Grade futures in New York surged to a nine-month high of 483 cents per pound, reflecting a 47-cent premium per pound or USD 1000 per ton over the corresponding price on the London Metal Exchange. Considering this spread in ‘normal’ times trades below 10 cents, it highlights upward pressure on prices in New York, which, for growth- and demand-dependent metals like copper and platinum, may not reflect their underlying fundamentals, which remains relatively soft for now.
Responding to the mentioned broad price strength, managed money accounts, which include hedge funds and CTAs, turned very strong buyers during December and January, driving up the net long across 27 major futures contracts to levels last seen in June 2022, near the end of the pandemic- and stimulus-led rally that saw the BCOM index more than double. However, in the last couple of weeks, some mild profit-taking has started to emerge, primarily driven by selling of crude oil, gold, soybeans, and corn, and only partly offset by renewed demand for natural gas, copper, and wheat.
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.
