Elev8 broker analyses latest CFTC COT report on currency…

Introduction

In this article, Elev8, a global CFD broker, analyses the latest Commitments of Traders (COT) report to help traders understand current market positioning. The Commodity Futures Trading Commission (CFTC) publishes this report on a weekly basis, usually every Friday. It provides a clear view of open interest in U.S. futures markets and shows how commercial hedgers and large speculators are positioned. Traders often treat the report as a kind of sentiment map. It helps them identify extreme situations that may indicate the presence of overbought or oversold conditions. The report also helps track where large speculators place their bets, and anticipate potential trend reversals when positioning becomes crowded.

Elev8 broker specifically focuses on the net positions of non-commercial traders, which are large speculators such as hedge funds, in both options and futures markets. In addition, the Elev8 broker calculates relative sentiment by tracking positions over a three-year window, on a scale from 0 to 100. A reading of 100 indicates positioning is at a three-year high, while 0 indicates a three-year low. Readings above 90 indicate overbought conditions, and readings of 10 or lower point to oversold conditions.

Key findings

According to the latest CFTC COT report, large speculators substantially increased short positions in the Australian dollar (AUD), the New Zealand dollar (NZD), and Japanese yen (JPY). At the same time, they increased long positions in the Swiss franc (CHF). The most overbought currency is the Japanese yen, with 49,493 net-long contracts and a relative sentiment of 65.9. The most oversold currencies are the Australian dollar and the euro, with relative sentiment standing at -7.4 and -3.9, respectively (see the charts below). ‘Large speculators are rotating capital into short positions on risk-sensitive Aussie and Kiwi, as domestic data weakened there, but, interestingly, they also increased bearish bets in the Japanese yen mostly due to a still substantial rate gap between the U.S. and Japan, which continues to favour carry-trade,’ said David Perk, financial analyst at Elev8 broker.

Source: CFTC COT, Elev8 broker calculations

Australian dollar (AUD): +16,928 short positions
New Zealand dollar (NZD): +14,461 short positions
Japanese yen (JPY): +13,557 short contracts
Swiss franc (CHF): +1,972 long positions
The most overbought currency: Japanese yen (JPY) with 49,493 net-long contracts (relative sentiment: 65.9)
The most oversold currencies: Australian dollar (AUD) with 121,908 net-short contracts (relative sentiment: -7.4) and the euro (EUR) with 162,986 net-short contracts (relative sentiment: -3.9).

What is going on?

Weak employment data and fading expectations of rate hikes by the Reserve Bank of Australia (RBA) drive the increased short positions in AUD. Australia’s September employment report showed an unexpected fall of 39,300 jobs, and the unemployment rate stayed at a five-year high of 4.7%. Investors now price in only an 18.7% probability of an RBA hike on 3 November. This adjustment is expected to keep the Australian dollar from rising substantially. Technically, AUDUSD dropped to almost a 4-month low of 0.6895 and broke through the base of a bear pennant on the daily chart, which reinforces bearish technical signals. Elevated U.S. Treasury yields, with the 10-year yield at 5.098%, and the US dollar near 18 month-highs also limit upside for the Aussie.

Similar macroeconomic forces affect the New Zealand dollar, which fell about 4.6% against the dollar during September. While the Reserve Bank of New Zealand (RBNZ) is expected to raise rates, a strong greenback, high yields, and weakness in equities pose ongoing challenges for risk-sensitive commodity currencies. As David Perk notes: ‘NZD is a small, open, commodity-linked currency that tends to underperform during periods of global risk aversion and US dollar strength, both of which have intensified in October’.

Safe haven demand and geopolitical escalation explain the addition of long positions in the Swiss franc. Indeed, CHF outperformed its G10 peers as carry trades started to unravel amid AI sector equity weakness, with the Philadelphia semiconductor index sinking 3.8% and falling Treasury yields. Bond market turmoil and the French debt crisis drove additional safe-haven demand. Furthermore, oil prices surged, with Brent touching $110 per barrel amid Middle East supply fears, reinforcing demand for safe-haven assets such as the Swiss franc.

The primary driver of net-long Japanese yen positioning is the aggressive monetary tightening cycle by the Bank of Japan (BoJ). The central bank raised its benchmark rate to 1.25%, a 31-year high, and the market expects further tightening due to high inflation. However, despite the longer-term bullish case for the yen, some traders are adding short positions due to near-term headwinds. Most notably, rising oil prices hurt Japan as a major energy importer and widen its trade deficit. This, in turn, weakens its currency. Furthermore, fiscal concerns over increased spending and planned tax cuts increase investors’ worries over the sustainability of the debt level. Finally, the still-wide interest rate gap with the United States continues to support carry trades that short the yen.

As for the euro, traders have plenty of reasons to sell it. French political instability and fiscal problems, rising energy prices as a result of the conflict in the Persian Gulf, ECB policy uncertainty, U.S. dollar strength, and the euro’s growing role as a funding currency explain the heavy net-short positions in the euro. France experienced some of its worst civil unrest in years, with riots and looting prompting partial curfews. The spread between French and German bonds widened by approximately 40 basis points (bps) to above 150 bps, reaching a 15-year high of nearly 160 bps. France’s debt burden shows no sign of easing as markets remain sceptical about the government’s ability to pass its 2027 budget. Europe is a major energy importer, and higher energy costs widen trade deficits and weigh on the currency. The ECB has shifted its focus to the tightening of financial conditions, and markets currently price in zero probability of a rate hike at the October meeting. The U.S. dollar index rose to 18-month highs near 102.95, supported by hotter-than-expected U.S. data, which additionally helped push euro down. Furthermore, David Perk, financial analyst at Elev8 broker, has noted a growing shift in preferred funding currencies. He argues that the euro is increasingly used as a low-yielding funding leg for carry trades. This means investors are borrowing in euros to purchase higher-yielding currencies, leading to a rise in short euro positions.

Conclusion

The latest CFTC COT report shows clear shifts in speculative positioning. Large speculators seem to favour short positions in the Australian dollar and New Zealand dollar while building long positions in the Swiss franc. Extreme positioning appears in the Japanese yen on the long side and the euro and Australian dollar on the short side. These levels reflect a combination of domestic data, central bank expectations, geopolitical risks, and U.S. dollar strength. Traders should monitor these readings closely as new economic data and geopolitical events develop.

Frequently Asked Questions

What does the CFTC COT report show?

The Commitments of Traders report, published weekly by the Commodity Futures Trading Commission, usually every Friday, shows open interest in U.S. futures markets and how commercial hedgers and large speculators are positioned. Traders use it as a sentiment map to spot overbought or oversold extremes, follow where large speculators place their bets and anticipate potential trend reversals when positioning becomes crowded.

Why are speculators shorting the Australian and New Zealand dollars?

Australia’s September employment report showed an unexpected fall of 39,300 jobs, unemployment held at a five-year high of 4.7%, and markets price only an 18.7% chance of an RBA hike on 3 November. The New Zealand dollar fell about 4.6% against the dollar in September, pressured by a strong greenback, high yields and equity weakness that hurt risk-sensitive commodity currencies.

Why is the yen both net long and attracting new shorts?

The Bank of Japan raised its benchmark rate to 1.25%, a 31-year high, which supports net-long yen positioning. Near-term headwinds are drawing fresh shorts, however: rising oil prices widen Japan’s trade deficit, fiscal concerns over spending and tax cuts weigh on sentiment, and the still-wide interest rate gap with the United States continues to support carry trades that short the yen.