Positioning Update
Pulling the trigger in forex land
Another week, another positioning update! Here are the COT data that caught my attention:
Japanese Yen: I officially opened a trade this morning, the setup is looking too good to pass up now. Large speculators are now net short, the first time since January 2025.
Back then, the yen was pushing higher on the narrative of rising inflation and potential rate hikes. Speculators became extremely bullish and drove the yen back to 140 against the US dollar.
Flash forward to today: the narrative has completely flipped, and everyone is aboard the Takaichi trade.
76% approval rating for the Iron Lady…
…emboldening her to call for a snap election…
…which will consolidate her power and unlock a $135 billion stimulus package plus further reforms.
Nothing stops this Japanese train…
This narrative pushed the yen back to 159 against the USD. The market is sending a signal to the BOJ that rates are still too low and that they are falling behind. They can either intervene directly in the FX market or simply do their job and… hike. But the market is pricing a 0% chance of a hike in January and only a 25% chance in March.
My feeling is that we have a lot of lazy long in Nikkei and USD/JPY. And that the Takaichi trade is now fully priced-in, at least in USD/JPY.
From Bofa regarding Nikkei CTA positoniong:
"With equity realized volatility now at depressed levels, volatility‑sensitive strategies may have pushed aggregate systematic equity positioning to its highest level in roughly five years.
Looking ahead, the risk profile is asymmetric: downside moves could prompt material positioning unwinds, while flat to higher equity markets would likely result in more gradual adjustments. Based on our models, CTA unwinds would begin following declines of roughly 3.5% in the EURO STOXX 50, and 6% in the Nikkei."
For me, this is the cherry on top. The trade has been officially logged in the web app, and you should have received an email among the other two trades (closing the gold trade and opening the bitcoin trade).
Swiss Franc: Positioning is favoring a long here. This is a great way to play for a risk-off move.
Bitcoin: I bought the dip this morning, it looked like a quick liquidation event from all the recent bulls. While positioning is not completely clean in my opinion, it still provided a good risk-reward setup to finally enter this trade.
Russell 2000: Large speculators are now long. The rotation trade is really unfolding before our eyes. No call for action yet.
MSCI EAFE: Similar to the rotation/broadening-out trade, we are seeing increasing positioning in ex-US indices.
Gold: Finally, we are seeing some buying from the large spec community.
Silver: The same goes for silver, with small speculators now over their skis. Large specs still have a lot of buying to do before the COT data becomes crowded long.
Copper: Interestingly, we are seeing some selling in copper. It was the most crowded trade and turned out to be one of the most disappointing ones in terms of performance relative to gold, silver, and platinum.
Crude Oil: Still the same story, very light positioning, but all of Twitter and Substack is all over it. They got burned badly last week. I’m keeping an eye out for a buying opportunity.
Natural Gas: Very large short positioning… Nat Gas futures opened up 13% this morning, maybe the beginning of a short squeeze. I could potentially buy shallow dips in the coming days for a very tactical play.
