Summary

  • EURUSD rally has faded, is here a chance for a larger pullback?
  • GBPNZD to test resistance as traders become bullish on the pound
  • Cocoa prices could bottom up

In this analysis we revisit a concept of speculative positioning. The data that is reported by the CFTC each week shows as an attitude of speculative investors towards numerous markets. Obviously the more interest the more fuel for price increases, speculative capital could stand behind the largest moves on the market. However there could be too much of a good thing. When there’s already a lot of capital being invested in the market, new buyers could be scarce and price could be sensitive to negative information. We look for the markets where positioning is close to extreme levels and analyse if a reversal is possible.

EURUSD

The pair has seen a stunning rally so far this year seeing already levels above 1.20. Even though the pair has inched back a bit since then a positioning remains quite extreme. It could be a bit hard to believe but despite all the good news from the US (hawkish Fed, better data, speculation about Warsh becoming the next FOMC Chair) positioning in the US currency remains net negative and at the same time close to multiyear lows. Meanwhile, positioning in the euro remains close to multiyear highs as investors await details on the QE policy in 2018. 

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Positioning in USD remains negative which could be a chance for the greenback. Source: Bloomberg 

On the EURUSD chart we see that 1.17 has acted as a support so far. Here’s how the contrarian scenario could unfold: we can imagine a rise towards 1.19 and then a pullback and in this scenario we would be looking at a large head and shoulders formation that could drive the pair significantly lower over a medium term. Alternatively 1.1670 could be broken soon (without a temporary move towards 1.19) and result in some short term downside potential.

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A break of 1.1670 could unlock more of a downward potential for the EURUSD. Source: xStation5 

GBPNZD

Brexit negotiations are becoming more and more messy but traders do not care anymore. Or at least one could make such conclusions tracking the CFTC positioning that has not only become net positive but is moving close to multiyear highs! This could be staggering but the reason is Bank of England that’s been talking about interest rate hike. Then again, if prospects for Brexit negotiations do not improve, the outlook for the British currency could sour pretty soon.

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What Brexit? Speculative capital is dangerously positive on the GBP. Source: Bloomberg 

GBPNZD is an interesting pair because we’ve seen a rally here back by both: GBP interest and some NZD weakness. However, a resistance at 1.8725 looks fairly solid and any signs of supply at that level could make for an interesting trading opportunity. 

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GBPNZD is about to test a 1.8725 resistance again and a bearish formation could spark a reversal. Source: xStation5 

Cocoa

We pointed out to Cocoa in our report “5 trade opportunities for the fourth quarter”. Cocoa had a tough period where prices tumbled under a burden of oversupply but an area of $1800 seems like a grand support on this market. Cocoa is yet to make it above $2100 in a decisive way but the fact that both prices and net position (that remains deeply negative) do not longer decline could be a reason for optimism. 

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Cocoa prices could rebound if negative positioning is reduced. Source: xStation5