There is strong speculative demand for copper and silver

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Saxo Bank publishes weekly Commitment of Traders Reports (CHILDREN’S COT) for leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader metric referred to as non-commercial.

This summary highlights futures positions and changes made by hedge funds in the commodities, forex and finance sectors as of last Tuesday, October 19th, a 20 month low. The dollar weakened against a basket of major currencies as bond yields rose, led by rising breakeven yields as a more persistent inflation forecast gained momentum. Profits on most commodities except softs and natural gas were absorbed by mixed reaction from hedge funds.

raw materials

A 1.1% rise in the Bloomberg Commodity Index to a new multi-year high did not trigger a buy reaction from hedge funds. Despite broad profits, with softs and natural gas being the few exceptions, the net long position on 24 large futures contracts was trimmed for a second week.

The purchases closed on HG Copper, where an 8.7% increase resulted in a 52% increase in the net long, while the 6.1% rally in silver helped tripling the net long to 14, Support 6k lots. Aside from a 15% cut in the notorious volatile natural gas contract, the response across the energy sector has been mixed with demand for gas oil and gasoline, while the combined crude net long has been reduced for a second week as WTI purchases continue through Brent sales . During this time, the WTI long increased by 31,000 lots, while the Brent long was reduced by 56,000 lots.

In agriculture, strong soybean sales continued, with long-term net volume falling to 18,000 lots, a level last seen 16 months ago, just before China began to suck up supplies. Overall, the net long position in corn, soybeans and wheat fell to 220,000 lots, a decrease of 61% since the record high in April. Strong sales in sugar and cocoa also helped cut bullish bets sharply, while a 4% correction in coffee only reduced the net long position by 1%.

Latest comments from our Market Quick Take posted daily here:

Crude Oil (OILUKDEC21 & OILUSDEC21) continued to rise in Asia, with Brent crude now trading within striking distance of the 2018 high of $ 86.75, while WTI is trading at a new seven-year high. The market remains bid, with OPEC + sticking to its cautious approach to ramping up production, which still threatens the pandemic demand threat. It ignores the evolving energy crisis, where it is estimated that switching from gas to oil could mean a million barrels of extra oil in demand this winter. This week, focus on dwindling US inventories and China facing renewed Covid-19 outbreaks after infections spread to 11 provinces.

Gold (XAUUSD) and Silver (XAGUSD) The recent strong price gains suffered a temporary setback on Friday in response to a sudden fit of anger, following comments from Fed Chairman Powell. At the same time, however, he downplayed the risk of a rate hike and expressed concern about the persistently high inflation. Focus on the dollar, which continues to lose momentum, and bond yields, where the recent rise in yields has been mainly driven by a rebound in inflation, keeping real yields deep in negative territory. Resistance at $ 1814 followed by large resistance at $ 1835.

Grain prices Led by Wheat, which rebounded sharply last week, amid rising demand for all types of wheat and stocks that may be heading to a five-year low by the end of the 2021-22 season. Add to this soaring fertilizer and fuel costs for farmers and a three-month US weather forecast calling for drought in key growing areas like Kansas. The benchmark futures contract for soft winter wheat (WHEATDEC21) has returned to $ 7.63 from $ 7.86, the eight-year high hit in August.

Forex

The cumulative dollar long position against ten IMM currency futures and the dollar index was reduced by 3 percent to $ 24.9 billion in the week ending last Tuesday. Still close to the biggest bet on a rising dollar since June 2019, the small overall change hid a lot of cross-activity as the specs were notable buyers of CAD, GBP, AUD and EUR while sales of CHF and not least JPY were fast went on. The 26,000 lots of JPY net sales pushed the net short to its highest level since December 2018, while the net CHF net short hit a 22-month high.

After almost 18 weeks of sustained purchases, the dollar index reached a two-year high of 35.9 thousand lots, still less than half of the record value of 81 thousand lots from March 2015.

Among the minor currencies, the most notable change was 2.8k lots of RUB purchases, which took the net long to 22k lots, the highest since March 2020, just before a collapsing oil price sent the ruble sharply lower.

What is the Dealer Obligations Report?

The COT reports are issued by the US Commodity Futures Trading Commission (CFTC) and ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the US shutdown with data from the week that ended the previous Tuesday. They divide the open interest in futures markets into different user groups depending on the asset class.

Commodities: producer / trader / processor / user, swap trader, managed money and others
Finance: Dealer / Broker; Asset managers / institutional; Leveraged Funds and Others
Forex: A rough breakdown into commercial and non-commercial (speculators)

The reasons why we mainly focus on the behavior of the highlighted groups are:

  • You likely have tight stops and no underlying risk being hedged
  • This is how they react most strongly to changes in fundamental or technical price developments
  • It provides views of key trends, but also helps decipher them when a trend reversal is emerging

Ole Hansen, Head of Commodities Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, Part of Saxo Bank Group via RSS feeds on FX Empire


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