COT report: Traders turn selective despite ongoing broad commodities rally. Dollar selling continues – Saxo Bank MENA

Commodities:

Following several weeks of widespread buying across most commodities and sectors, hedge funds began to exhibit signs of caution, adopting a more selective approach during the week leading up to 18 February. This period saw the Bloomberg Commodity Index climbing by 1.6% to reach a new 17-month high, buoyed by gains across all sectors except livestock.

The standout performers were the grains sector, bolstered by wheat and corn, alongside the energy sector, where a strong 14% surge in natural gas prices more than compensated for losses in crude and fuel contracts. Almost non-stop buying since November has seen the natural gas net long jump to a four-year high as traders respond to an improved outlook for US domestic demand and rising LNG exports, both potentially underpinning higher prices. However, in the short term, with many fresh longs in the market, the risk of a pullback has risen.

Overall, the net long positions across the 27 major futures markets tracked in this update increased by 6%, reaching 1.7 million contracts, which equates to a nominal value of USD 153 billion. However, as illustrated in the table below, only a select few contracts were responsible for driving this increase, with natural gas, gas oil, silver, wheat, corn, and sugar leading the charge.

In contrast, crude oil and gold, two of the most popular contracts for trading, experienced net selling. This was a reaction to the persistent weakness in crude oil prices and a gold market that required consolidation after an eight-week rally, which had pushed prices close to USD 3,000. Continuing with the metals sector, it is noteworthy that there was a significant increase in the net long positions for silver, driven by fresh buying activity, partly supported by copper strength, which drove a 23% increase in the High Grade contract. However, given the increase in the net long was mostly due to short-covering, it suggests a (copper) market environment where recent price surges have not been supported by underlying fundamental factors, such as the ongoing increase in stocks monitored by major futures exchanges.

In the agricultural sector, concerns about cold weather in the United States and Russia prompted short-covering across the Chicago and Kansas wheat contracts. Despite this activity, a net short position was maintained in both, highlighting the need for even stronger gains to trigger a change in the overall negative sentiment. In other developments, the net short position in sugar was reduced by 76% as the commodity staged a robust recovery, with prices surging more than 20% over the past five weeks.

In contrast, Arabica coffee’s rally to a new all-time high did not attract additional demand. Both long and short positions were reduced, resulting in a slight decrease in the net long position for the week. This indicates a cautious market sentiment despite the recent price rally.

Forex:

In the forex market, speculators continued to scale back bullish USD bets, with a fifth week of net selling against eight IMM futures reducing the gross long by USD 3.3 billion to USD 23.5 billion, an 11-week low. As opposed to recent weeks where most of the US dollar selling was against the Japanese yen, the recent reporting week saw broad selling against most of the major crosses, led by the euro, Australian dollar, Japanese yen, and Canadian dollar.

Overall, however, a net long and, in some cases, still elevated US dollar position is being held against most of the currencies tracked in this update, the notable exception being the Japanese yen, which has seen continued buying for the past five weeks, worth more than USD 7 billion.

Last Updated on 4 hours by News Desk 1