The following Commodities Forex Report is an excerpt from
CashBack Forex:
On Friday afternoon, the Commodity Futures Trading Commission issues a commitment of traders report for commodity futures. This massive document is for data through the close of trading on the previous Tuesday. Since last Friday was a government holiday, the data was not released until this Monday.
The breakdown is basically divided between large spec, small specs and commercials. With commodity funds, hedge funds, ETF's, the number of large spec participants has ballooned, commercial participation has shrunk, and the small spec has become insignificant in many markets. The flow of money into and out of the market often determines the market's direction.
Last week, for example, commodity specs bought 840, 972 contracts according to Bloomberg sources, for an increase of 5.3%%. Most of the purchases were in the energy complex, and with the money inflow, prices went up, WTI crude topping $102 per barrel today.
At the CME, where currency futures are traded, the analysis is a bit more complicated. The actively traded contracts are traded versus the USD. When you sell the euro, you are buying the USD, or when you buy the Australian Dollar, you are selling the USD. Each week we compile the total of the combined net large and small spec positions to determine if money has been flowing into or out of the USD.
Last week the COT report showed, in the aggregate, specs were sellers of the USD, reducing their USD long to 73,687 contracts, from the prior weeks long of 107,105 contracts. This marks the fourth straight week, specs have been sellers of the USD, reducing their USD long from a high of 223,416 contracts on the October 11th report.
Granted the futures trade is dwarfed by the Forex trade, but the clandestine nature of the ladder makes it difficult to analyze. What we do know is for the last month the specs have been net sellers of the USD futures.
While the specs are selling the USD, there have been some good size buyers. Today it was reported by the US Treasury foreign investors bought a net $68.6B of US long term investments during September. This is an increase from $58.0B in August.
As we mention in "The Euro Continues to Slide," the continuing turmoil in Europe is causing money to leave Greece, Italy and Spain, seeking a safe haven elsewhere. We would surmise this results in cash selling of euros and buying of another currency. Until there is some evidence of a resolution to the euro debt issues, the macro money flow will continue away from the euro.
So far this week we have had three days down in the EURUSD, though the euro has bounced off the bottom today. Perhaps the bounce will continue but we prefer to be a seller. For all the adversity in the Eurozone, the euro is still trading marginally higher against the USD since the beginning of the year. The US may have some debt issues also, but they are a lot easier to service when the 10 year rate is 2% rather than the top side of 7%. It would seem there is a real risk credit markets could freeze, which might cause recent euro support to melt away. As always control your risk.
