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4 Apr 2013
USD/JPY, big imbalances btw specs and commercials ahead of BoJ
FXstreet.com (Barcelona) - According to last COT, the Commitment Of Traders from the CFTC report, which tracks positions in future markets from previous Tuesdays to latest Friday by NY closing time, 85% of commercial traders, held by March 26, were long positions in Yen futures.
According to the Commission, a Commercial trader will be one "...engaged in business activities hedged by the use of the futures or option markets," CFTC Form 40 reads.
In other words, Commercial traders or also known as hedgers, are traders who use derivatives to hedge underlying positions, such as exporters or importers, who want to secure an exchange rate, and don't care what the rate does after that trade is in.
That happened with Hedgers in Yen starting from the 79.00 level by mid October. They had been net Yen longs from March 2012 highs around 83.00, and reversed to net short Yen during the summer of last year when USD/JPY printed lows around the 77.00 level. Somehow, the anticipated general election call took them on the wrong foot, and speculators took advantage of it, namely Soros among them as later on reported, and brought USD/JPY pair up all the way till recent 3.5-year highs at 96.70.
All along that move higher Commercials have been adding to Yen longs, to the point where now they are even (actually the market as a whole is even since every futures contract needs to have two sides, a seller and a buyer) around the 86.00 mark. More or less since accurate data at this point must be near to impossible to have.
Through all November long, open interest kept growing, that is new contracts left open overnight, with Commercials (or Hedgers) taking the long Yen part, while Speculators taking the short Yen side. For the Commission, a Speculator is that one who is not a Commercial. It's that easy. Then among Speculators the Commission divides them in 2 categories, Big, and Small.
Big ones are those obliged to report a certain amount of contracts dealt, a minimum, that is, say I deal more than X number of contracts, say 100 for instance, then I should report it to the Commission. Then i'd be considered a Big Speculator. In case I traded less than that minimum, I'd be a Small Speculator. When the Commission has a total number of contracts traded, subtract those reported as Commercials and Big Specs, the difference with the total will be those Small Specs. Simple.
By now, or better said, by last Tuesday March 26, when USD/JPY closed in NY around the 94.50, and 3 days later Fiscal year in Japan was to end, 74% of Big Speculators and 78% of Small ones where short the Yen. Which is a huge imbalance, as once Commercials hold completely one side of the market, who's left to keep pushing it further? Not only that, Commercials can hold positions against them as long as they want since it is a hedge, meaning what they are losing with the contract, it is a benefit from the underlying.
Speculators have no underlying to hedge, they just look for pure profit, so once they start realizing those profits, swings tend to be much more aggressive as the path it took in this case USD/JPY to get there. Coupled with those forced to liquidate positions leveraged on margin. When a margin call is met, brokers have to liquidate positions at the market, what causes more and more sharp moves. Something that at a time was something very usual in USD/JPY, and something it happened in times like these, when big imbalances were shown in positions, with one side mostly held by Speculators, while the other side held by commercials.
According to the Commission, a Commercial trader will be one "...engaged in business activities hedged by the use of the futures or option markets," CFTC Form 40 reads.
In other words, Commercial traders or also known as hedgers, are traders who use derivatives to hedge underlying positions, such as exporters or importers, who want to secure an exchange rate, and don't care what the rate does after that trade is in.
That happened with Hedgers in Yen starting from the 79.00 level by mid October. They had been net Yen longs from March 2012 highs around 83.00, and reversed to net short Yen during the summer of last year when USD/JPY printed lows around the 77.00 level. Somehow, the anticipated general election call took them on the wrong foot, and speculators took advantage of it, namely Soros among them as later on reported, and brought USD/JPY pair up all the way till recent 3.5-year highs at 96.70.
All along that move higher Commercials have been adding to Yen longs, to the point where now they are even (actually the market as a whole is even since every futures contract needs to have two sides, a seller and a buyer) around the 86.00 mark. More or less since accurate data at this point must be near to impossible to have.
Through all November long, open interest kept growing, that is new contracts left open overnight, with Commercials (or Hedgers) taking the long Yen part, while Speculators taking the short Yen side. For the Commission, a Speculator is that one who is not a Commercial. It's that easy. Then among Speculators the Commission divides them in 2 categories, Big, and Small.
Big ones are those obliged to report a certain amount of contracts dealt, a minimum, that is, say I deal more than X number of contracts, say 100 for instance, then I should report it to the Commission. Then i'd be considered a Big Speculator. In case I traded less than that minimum, I'd be a Small Speculator. When the Commission has a total number of contracts traded, subtract those reported as Commercials and Big Specs, the difference with the total will be those Small Specs. Simple.
By now, or better said, by last Tuesday March 26, when USD/JPY closed in NY around the 94.50, and 3 days later Fiscal year in Japan was to end, 74% of Big Speculators and 78% of Small ones where short the Yen. Which is a huge imbalance, as once Commercials hold completely one side of the market, who's left to keep pushing it further? Not only that, Commercials can hold positions against them as long as they want since it is a hedge, meaning what they are losing with the contract, it is a benefit from the underlying.
Speculators have no underlying to hedge, they just look for pure profit, so once they start realizing those profits, swings tend to be much more aggressive as the path it took in this case USD/JPY to get there. Coupled with those forced to liquidate positions leveraged on margin. When a margin call is met, brokers have to liquidate positions at the market, what causes more and more sharp moves. Something that at a time was something very usual in USD/JPY, and something it happened in times like these, when big imbalances were shown in positions, with one side mostly held by Speculators, while the other side held by commercials.