Large speculators are net short the dollar for the first time in three years
Since peaking in early January, it's been downhill for the U.S. dollar, as evidenced by the price action in the
PowerShares DB US Dollar Index Bullish Fund (UUP) and the underlying
U.S. Dollar Index (DXY). What's more, large speculators are net short the dollar for the first time in three years, per recent Commitment of Traders (CoT) data. Below, we'll take a look at the greenback via UUP and DXY, and examine the massive inflows out of America and into emerging markets and Europe.
The UUP exchange-traded fund (ETF) has dropped almost 10% since its Jan. 3 post-financial crisis peak of $26.83, touching an annual low of $23.98 on Aug. 2. The ETF is now testing support in the $24-$24.25 vicinity, which has contained several pullbacks over the past few years. At the same time, the
Guggenheim CurrencyShares Euro Trust (FXE) has been flirting with two-year highs; as our founder and CEO Bernie Schaeffer recently pointed out, "
dollar weakness over extended periods is almost always accompanied by strength in the euro currency."

As noted earlier, large speculators are net short the dollar for the first time since 2014, per CoT data. Last week was the second straight week these speculators were net short the greenback. Prior to that, large speculators were net long the dollar for 164 weeks straight. Meanwhile, despite minor liquidations over the past couple of weeks, CoT large speculators are approaching a record long position on the euro.


The dollar shorts could be behind the much stronger-than-usual appetite for long calls on UUP, as the skeptics seek an options hedge. The dollar fund sports a 10-day call/put volume ratio of 8.98 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), meaning traders have bought to open nearly nine UUP calls for every put in the past two weeks. This ratio registers in the 86th percentile of its annual range, pointing to accelerated call buying of late.
Meanwhile, data from
etf.com indicates more than $241 million in net outflows for UUP year-to-date, while the FXE has seen inflows of $59 million. And while the
SPDR S&P 500 ETF Trust (SPY) year-to-date outflows exceed $3.4 billion, the
iShares MSCI Emerging Markets ETF (EEM) has seen more than $2.3 billion roll in. Echoing that, the latest stats from BofA-Merrill Lynch point to a seventh straight week of U.S.
equities outflows last week, while emerging markets and Europe attracted $2.2 billion and $1.3 billion, respectively.
However, while the aforementioned CoT and inflows data -- on top of bearish dollar stories popping up in
The Wall Street Journal (subscription required),
and many other media outlets -- could be interpreted as contrarian signs of a potential dollar bottom, it should be noted that the DXY closed July beneath its 40-month moving average for the first time since April 2012. In the aftermath of DXY's 2000-2002 peaks, the pullback by the index below its 40-month in June 2002 was followed by an additional 10% decline by the start of 2003.
