CFTC data for the week to 18 August showed a firmer tilt in speculative positioning, led by oil and some covering in the Canadian dollar. WTI net longs rose by nearly 23K to about 122.1K contracts, the biggest weekly increase since late July, while positioning still sat around the 13th percentile of its five-year range. CAD net shorts narrowed by almost 15.2K to roughly 158.2K, the strongest improvement since early May, as USD/CAD eased; the net stance remained near the 9th percentile.
Elsewhere, the yen turned weaker as positioning deteriorated by around 10.8K contracts, and VIX exposure shifted further bearish with a 14.5K drop, the largest since 2 June. Within that, gross longs rose about 5.4K, but gross shorts jumped by nearly 20K, leaving net shorts close to 89.5K and near the 8th percentile. AUD net shorts widened by nearly 5K even as AUD/USD advanced, while GBP and EUR improved by around 1.6K and just over 900. Coffee net length rose roughly 3.2K to over 30.3K, driven by a near 3.9K fall in gross shorts versus a 662 dip in gross longs, lifting it towards the 29th percentile. Gold net longs increased by more than 4.2K to nearly 222.2K, although prices edged lower; positioning stayed near the 96th percentile, while EUR sat near the 4th.
Trading Opportunities in Commodities and Currencies
We should look to ride the burgeoning upward momentum in WTI crude oil as speculative net longs have jumped by nearly 23,000 contracts to 122.1k. Because oil positioning is still sitting near the low 13th percentile of its five-year range, we see massive room for this recovery to run as global supply anxieties persist. Buying crude call options or going long on front-month futures seems like a highly favorable risk-reward play right now.
At the same time, we must prepare for a potential short-squeeze in the Canadian Dollar. With net short positions currently sitting at an extreme 9th percentile, the recent covering of over 15,000 short contracts suggests the tide is turning. We recommend accumulating CAD longs against the US Dollar, especially as USD/CAD looks ready to break below its recent support levels.
In the currency space, we should continue to short the Japanese Yen in the near term as bearish sentiment rebuilds. Recent data shows yen net longs are falling while shorts rise, pushing USD/JPY back on an upward trajectory toward the 148.00 level. We can exploit this divergence by trading bullish USD/JPY spreads, keeping a close eye on any sudden central bank interventions.
Volatility and Precious Metals Positioning
We also see an opportunity to exploit the heavy bearishness in the equity volatility market. VIX net shorts have surged to nearly 89,500 contracts, placing volatility exposure at a historically low 8th percentile. Since the VIX is hovering near its year-to-date lows around 15, we advise buying cheap VIX call options to hedge against a sudden, violent spike in market turbulence.
Finally, we need to exercise extreme caution with gold, which remains the market’s most crowded long trade at the 96th percentile. Despite net longs rising to over 222,000 contracts, gold spot prices have struggled to push higher, signaling a bearish divergence. To protect our portfolios, we should consider trimming gold exposure or buying downside put options to prepare for a potential profit-taking correction.
