Wednesday, August 19, 2020

"Are The Commercial Dollar Traders Early, Wrong, Or Neither?"

In non-financial commodities the commercials have to be right more often than they are wrong or the entire game ends. They can get wrong-footed from time to time, that is what keeps the speculators coming back, just as casinos know they have to send some people home as 'winners' to bring the crowds in.

At best though the positioning reports are a general indicator and definitely not a timing instrument.
Whether even that is true in bond or currency futures is an open question.
Here's the positioning of the three main categories of market participants the CFTC requires to report in the Commitment of Traders (COT) in the lower panel of the FinViz dollar index futures:

As can be seen the commercial hedgers went from short to long in mid-June, even as the dollar index continued to decline.
And here's the headline story from Mike Shedlock at MishTalk, hosted at The Street, August 8:

Commercial traders are now net long the US dollar.
Extreme Reading But What Does It Mean?

Tom McClellan Dollar Tweet
Here is McClellan's Tweet.
From the comments on this post, some clarification is in order. Every futures contract is 1 long and 1 short position, held by diff. parties. Total longs=shorts always. But it matters who holds them. The commercials are supposedly the smart money, but they are often early.
Further Clarification Needed
McClellan is correct that long and short contracts net to zero. But as discussed with gold, the commercials are not the smart money.
With currencies, the commercials consist of two groups.
  1. Importers, exporters, and raw material buyers who genuinely want to hedge against a fluctuating dollar.
  2. Broker dealers, who take the other side of the trade and those on the sell side with ETFs and other product offerings. 
Neither group is either smart or dumb. First, let's go over where one can find the data....