The commodities sector led by metals and grains fell after the June 16 FOMC after the hawkish signal helped push the dollar up and inflation expectations lower. The long net total on the 24 major commodity futures contracts tracked was reduced 6% to 2.24 million lots, a four-week low. The largest reductions were seen in gold, silver and platinum as well as soybeans and sugar, while long positions in crude oil remained intact amid strong fundamental tailwinds.
Crude oil, commodities and natural gas all traded higher during the week of the report, avoiding post-FOMC weakness seen in metals and agriculture. Strong OPEC +-led fundamentals that keep supplies tight as global demand recovers helped dampen crude oil as speculators only reduced their net long positions by 1% in WTI and Brent.
Crude Oil is trading near its highest since 2018, with market participants expecting OPEC + to keep supply tight enough to support current levels. The group is meeting on Thursday to decide on production levels from August and beyond, and the market is currently looking for an increase of 500,000 barrels per day, which is lower than increases seen over the past three months.
With viral uncertainties over the highly contagious delta strain and questions over an Iranian nuclear deal hanging over the market, the group may be cautious, hence the current strength in prices. Brent support at $ 74.5 when it should drop below $ 72 before signaling the risk of a deeper correction.
Speculators drastically reduced their purchases of gold, silver and platinum after the FOMC meeting helped boost the dollar while lowering inflation expectations. The accelerated sale that followed the meeting helped push gold purchases down 33% to 76,000 lots, a seven-week low and silver 36% to 29,000 lots while the 81% reduction in platinum purchases brought the position back to neutral. Focusing on the latter, the relative strength seen in platinum since the initial sell-off can to some extent be explained by speculators rebuilding their long positions.
Gold continues to consolidate below $ 1,800 with a break above $ 1,820 likely needed to attract new buying interest, especially after many speculators threw in the towel following the hawkish FOMC meeting June 16. Before that, the market remains focused on the dollar and its recent unfavorable price strength and whether inflation is indeed transient, as reported by central banks, or whether it is taking more root.
Speculators lowered bullish bets on grains and soybeans to their nine-month low, with the biggest cuts seen for soybeans and soybean oil. Reversing the trend, we saw the wheat position revert to a small net long position.
On forex, the widespread dollar buying that followed the hawkish FOMC meeting on June 16 helped trigger a 31% reduction in speculative dollar selling against ten IMM currency futures and the Dollar Index. The largest flows that triggered the reduction from $ 6 billion to a seven-week low at $ 13.1 billion were mainly driven by sales of euros (-29,000 lots), pounds sterling (14 000) and yen (7000). Despite a decline of 2.2%, the Swiss franc was bought up to 4000 lots.
What is the Merchant Engagement Report?
COT reports are published by the US Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and diesel. They are released every Friday after the US close with data for the week ending the previous Tuesday. They break down the open interest in futures markets into different user groups based on asset class.
- Commodities: Producer / Merchant / Processor / User, Swap dealers, Managed money and other.
- Finances: Dealer / Intermediary; Asset manager / Institutional; Leverage funds and other.
- Forex: a wide distribution between commercial and non commercial (speculators).
The reasons why we mainly focus on the behavior of the highlighted groups are:
- They are likely to have tight stops and no underlying exposure who is covered
- This makes them most responsive to changes in the evolution of fundamental or technical prices
- It provides views on major trends but also helps to decipher when a reversal is imminent
This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of the Saxo Bank group via RSS feeds on FX Empire