In October, the US dollar index (DXY) reached the highest level since May 2017, reaching close to the round and psychological level of 100 points. This barrier was not crossed then. As a result, we saw the biggest correction since June this year. As DXY climbed higher and higher, the EUR/USD exchange rate fell to the lowest level since mid-2017, and the AUD/USD and NZD/USD exchange rates were the lowest since 2009. The strength of the dollar was widely visible.
During this period, as the USD was constantly strengthening, institutional investors increased their involvement in long positions on dollar index futures contracts - according to the COT report published by the CFTC commission. Even in March 2018, non-commercial investors had 20,950 opened long futures contracts on the dollar index. On the other hand, in September 2019 there were already 54,410 contrats. The scale of increase in interest in long positions was therefore significant at that time, and along with the increase in the value of USD allowed institutional investors to make profits at that time.
Meanwhile, since the beginning of October, there has been a definite closing of long positions, whose number has already dropped to 31 509, which is the lowest value since May 2018. Therefore, it seems that institutional investors are quite quickly getting rid of DXY contracts, thus realizing previously achieved profits. This may suggest that they do not believe in a further upward trend. If it were not so, they would wait instead of closing their positions.
Long positions of non-commercial investors on dollar futures contracts. Source: tradingster.com
It is therefore worth being vigilant, because institutional investors can raise capital from the almost two-year trend and then look for another opportunity to invest it and the next increase in engagement, but this time, perhaps, in more oversold currencies, such as AUD or NZD.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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