David Rosenberg is chief economist with Gluskin Sheff + Associates Inc. and author of the daily economic newsletter Breakfast with Dave.
The net speculative short position on the Canadian dollar has collapsed from 99,736 contracts at the end of May to 5,736 as of July 11. Over this time, the loonie rallied 6.6 per cent – and remarkably, there is still a lingering, albeit small, net short position. And what is interesting is that the movement has been three parts short-sellers running for cover to one part speculators actually going long. All that has really happened is that the negative positioning has unwound – the lack of a bullish thrust is actually good news because this is what could well take the loonie up even further.
This smacks of what happened in early 2016 when the dollar also rallied hard from an oversold low. Back then, the loonie strengthened to 76.92 cents (U.S.) in early April from 68.49 cents in mid-January and all it took was the 67,807 net shorts to vanish.
The next leg up to 80 cents in the ensuing month occurred as the noncommercial accounts actually built up a net long position of 17,418 contracts. So, based on this, it shouldn't be too surprising then if the dollar makes a further similar move to 82 cents against the greenback by the time fatigue sets in.
One other factor that may help the dollar is that the "smart money" is coming back into the oil market – the net speculative bullish position on the Nymex has climbed back some 8 per cent in the past three weeks to 405,935 net longs.
The mirror image of the loonie is the trade-weighted U.S. dollar, which has seen its once-massive net speculative long position on the Intercontinental Exchange sag to a mere 2,303 contracts from 31,273 contracts in mid-May – a decline of 93 per cent and the lowest since June 10, 2014.
One can safely say that complacency is still in a bull market of its own – no matter how dirt cheap the VIX is, nobody seems to want to own it. The net short position remains near historic highs at 110,288 contracts. Then again, the equity market types have taken the net speculative long position up from 2,813 contracts at the end of May to 15,020 currently, a nearly three-month high.
Despite the raft of soft U.S. data, the Treasury market has done little but stay range-bound. The situation is this – too many bulls in the ring. The net spec long backdrop remains very large at 223,553 contracts at the moment.