Over the summer, the US dollar was out of favor with the speculators in the futures market. This means that gross long positions increased and gross short positions tended to fall.  Speculators are only short three of the eight currency futures we track, the euro, sterling and Mexican peso. 

It took the market a few days to overcome the shockingly poor non-manufacturing ISM (51.4 vs. 55.5). However, by the end of the week, the US dollar bulls had regained the upper end.  The September Fed funds was implying a yield of 41.75 bp, up a quarter of a basis point from the September 2 close. 

On 30 November 2015, the IMF announced that the Chinese renminbi (RMB) was to be included in its special drawing rights (SDR) currency basket. Joining the SDR — the IMF’s chief international reserve asset for member states — meant that the RMB had been deemed ‘freely usable’.

The US dollar was already trading with a heavier bias before the shockingly poor service ISM.  The August non-manufacturing ISM tumbled to 51.4, a six-year low, from 55.5 in July.  Markit, which does its own survey, showed a smaller decline in its August read to 51.0 from 51.4 in July.  This was up slightly from the preliminary 50.9 estimate.

Speculative activity remained light in the latest CFTC reporting period ending August 30.  There were no gross position adjustments that we recognize as significant, 10k contracts or more.

There were only three gross adjustments by speculators of more than 4k contracts.  Speculators added 82.k contracts to their gross short euro position, bringing it to 190.2k contracts.  That ended a four-week stretch during which speculators covered short euro exposure. 

How much growth has foreign exchange experienced from the last report in April 2013?

Overall trading in foreign exchange has fallen from a year-to-year basis.  Markets in April 2016 saw turnover fall to $5.1 trillion from $5.4 trillion due primarily to less movement in the JPY in the current market environment.

What is the break down among the different foreign exchange products?

The World Bank sold the equivalent of about $700 mln of a three-year of a multiple currency bond that duplicated the composition of the IMF's Special Drawing Right or SDR.  There has been much fanfare.  It is the first SDR bond in more than 30 years according to reports. 

The summer lull for speculators in the currency futures market continued in the CFTC reporting week ending August 23.  Of the 16 gross currency futures positions we track, speculator adjustments were less than 3k contracts in all but three.

The bears added to their gross short sterling position for the eighth consecutive week.  The seven hundred contract increase was the smallest of the streak and lifts the gross short speculative position to 130.8k contracts, a new record.

Summer doldrums continue to depress speculative activity in the currency futures market.  In the CFTC Commitment of Traders reporting week ending August 16 speculators made small adjustments to gross currency positions.  There was only one change more than 6k contracts.

The Aussie bulls added 9.4k contracts to their gross long position, lifting it to 68.9k contracts. Of the other 15 gross positions we track, there were only two others above 5k contract

Since late July, I have been looking for the Australian dollar to turn lower.  Instead, the Aussie has continued to climb.  It has risen in ten of the past eleven weeks.  As this Great Graphic, created on Bloomberg, these gains have brought the Australian dollar toward a three-year downtrend line drawn off the April 2013 and the June-July highs from 2014.

This Great Graphic was created on Bloomberg.  I use it to illustrate a possible head and shoulder pattern that has been carved by the US dollar against the yen.  Head and shoulders patterns are most often regarded as a reversal pattern.

Some purists may insist this is always the case, yet many technicians recognize that on a rare occasion, the head and shoulders pattern can point to the continuation of the existing move.

Today is anniversary of the final blow to the dollar-gold standard.  By August 15, 1971, the exchange of dollars for gold was limited to central banks, and US President Nixon unilaterally ended it.  There was a brief attempt to resurrect it with new parities that failed, and thus beginning the current era of floating exchange rates. 

Speculative position adjustments in the currency futures continued at a low pace in the Commitment of Traders report for the week ending August 9.  There were though two distinct patterns.

The first pattern is found in the euro, Swiss franc, and Mexican peso.  In these currency futures, speculators reduced exposure.  Longs were liquidated and shorts were covered.  The adjustments were small with only the 9.8 contract reduction of the gross short euro position more than 5k contracts.

The US dollar has found steadier footing today after trading heavily yesterday.  There are two main themes.  The first is sterling’s heavy tone.  After closing the North American session 0.5% higher yesterday to snap a five-day losing streak, it has come under new pressure today. 

As non-traditional monetary policies in advanced economies are likely to eclipse, investors will increasingly turn to gold to hedge their portfolios.  Around mid-April, when the price of gold was still about $1,290, I made a contrarian projection that gold had a bright, though bumpy future. Since then, gold price has climbed to $1,365 – which translates to 6% in just one quarter.