The Currencies Hedge Funds Hate

One of my favorite data sets is the Commitment of Traders figures that the CFTC released each week. It shows us how various types of traders are positioned within various futures markets such as corn, Treasury’s, copper, and multiple currencies. A growing theme recently has been selling of certain major foreign currencies by the Large Trader category, which is often made up of hedge funds.

When studying COT data I primarily look at the Commercial Traders (‘smart money’) and the Large Traders (large hedge funds and institutions). The Small Trader category can be useful when at extreme reads but most of the time it just sits near the zero line so we don’t glean very much from these odd-lot traders.

First up we have the Canadian dollar ($FXC). Since mid-2009 Large Traders haven’t spent much time net-short the loonie and typically when they are we have seen the loonie eventually bottom out. Currently we can see that the Commercial Traders are the most net-long they have been in three years while hedge funds and Small Traders are historically extremely net-short.

Cad Dollar

Second up is the British Pound ($FXB). Over the last few years it hasn’t been unusual to see Large Traders go back and forward between being net-long and short the Pound. What I find interesting is the magnitude that the Commercial Trades have taken a net-long position, almost to the previous high from mid-2011. Hedge funds are currently net short but not yet to the same degree as in 2011.

British Pound

The Australian dollar ($FXA) is another market that we typically see Large Traders stay net-long. And as of last week they still were but are very close to flipping shorting. We looked at the uptrend in the  Australian equities last week, although a shift in the Aussie dollar could create some headwinds for equity bulls.

Aussie Dollar

So these are three currencies that Large Traders don’t seem to be big fans of right now. However, typically when this rubber band is expanded, in some cases to the current level, we see it relax/consolidate or snap back. This could have been created as part of the ‘risk on’ nature the market has adapted. This would make sense considering two of the currencies hedge funds have befriended are the Mexican Peso, the New Zealand Dollar, and the U.S. Dollar. Going forward, if we begin to see strength in the Aussie $, the Pound, or the Loonie we may see a short-squeeze that sends the Large Traders for the exits.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

The Relationship Between the Canadian Dollar’s Sentiment and U.S. Equities

One of my favorite blogs is Short Side of Long, He posts some interesting stuff and is well worth the read. This morning he discussed the sentiment in the Canadian dollar via a chart from Sentimentrader.com

From Long Side of Short:

First of all, we should all know by now that the S&P 500 correlates highly with risk assets and the Loonie is no exception with a correlation coefficient over 20, 50 100 and 200 days averaging 88%. Therefore, what I did in the chart [below], was to overlap the Canadian Dollar sentiment with the S&P 500. Interestingly, the results are worth discussing.

This morning I talked about my  concern over equities, and this Canadian dollar sentiment just adds another notch to my concern.

Source: Checking The Mood Of Mr Market (Short Side of Long)

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.