Speculative positioning became more selective in the week to 11 August. Gold led flows: net length rose by around 20.3K contracts, the strongest weekly gain since early June, as gross longs increased by nearly 24K and gross shorts edged up by just over 3.6K. With prices advancing, net longs reached almost 218K and exposure moved to the 95th percentile of its five-year range. Elsewhere, VIX positioning fell by around 13.8K contracts, the steepest weekly drop since 2 June, while the index retraced in step with the move; coffee went the other way, with net longs up by around 2.3K alongside a price uptick.
In energy, WTI non-commercial net longs slipped by around 13.2K contracts to near the 8th percentile, driven by a roughly 19.2K rise in gross shorts that outweighed just over 6K of added gross longs, even as prices rose by nearly 10%. In FX, CAD net shorts narrowed by just over 5.7K as USD/CAD dipped modestly; GBP net shorts also eased, though both longs and shorts increased. EUR positioning weakened by almost 2K, and AUD net shorts widened by more than 6K despite modest gains versus the US dollar. JPY net shorts fell by roughly 3.4K after a prior 117.9K improvement, even as USD/JPY gained. EUR sat near the 4th percentile, while USD positioning remained firm.
Gold, Oil, and Contrarian Commodity Opportunities
We advise derivative traders to ride the strong bullish momentum in gold, but with tight stop-losses as positioning crowds into the 95th percentile. Recent global market data shows gold spot prices holding strong above $2,450 an ounce, driven by persistent geopolitical tensions and global rate-cut expectations. While the trend remains firmly upward, this extreme positioning means any sudden shift in sentiment could trigger sharp, short-term pullbacks.
We see a compelling contrarian buy signal in West Texas Intermediate (WTI) crude due to a stark divergence between price and positioning. Even though oil prices recently jumped by nearly 10%, speculative net length plunged to the 8th percentile because of a massive surge in short contracts. This heavy bearish bias leaves WTI highly vulnerable to a violent short-squeeze, meaning we should position for sudden upward breakouts.
FX Market Dynamics and Trading Recommendations
In the foreign exchange market, we recommend keeping a close eye on the Euro for potential upside reversals. Euro positioning has deteriorated to the 4th percentile of its five-year range, making it prime for a massive short-covering rally if spot prices continue to firm up. We should look to buy EUR/USD on dips, especially as the U.S. dollar faces pressure from cooling inflation data.
Lastly, the historic unwind of the Japanese Yen short positions is finally losing steam, suggesting that the worst of the carry-trade panic is behind us. With the Yen weakening slightly and USD/JPY stabilizing, the immediate pressure on global liquidity has eased. We should adopt a neutral range-bound approach for JPY crosses in the coming weeks, rather than chasing the previous trend.
