The US dollar pulled back last week after having registered 4 straight weeks of gains, amid the first weekly fall in US Treasury yields in over a month. The latest Commitment of Traders (COT) report highlighted the 3rd straight weekly increase in the (yen) carry trade, and another record in euro futures positioning. Meanwhile, a potential head & shoulders pattern looms over the EUR/USD, which could have bearish implications if confirmed. And finally, US equities continue to break out to fresh record highs, highlighting the continued optimism among futures speculators despite being technically overbought.

The (Japanese) yen carry trade continued to surge, according to the latest COT (Commitment of Traders) report, as non-commercial speculators significantly increased their bearish bets vs. the Japanese currency for the 3rd straight week. The percentage of net longs declined to 25%, as long contracts finally saw a dip from their 2017 highs. The Japanese yen recovered modestly last week vs a trade-weighted basket of currencies, however, but again remained close to its recent year-to-date low.

According to recent retail FX positioning data, the retail population had become more bullish (in terms of net percentage of contracts), upping their (yen) long positions to 57% at the start of last week, but subsequently pared back their net long position. This may explain why the USD/JPY has pulled back from above the 113.00 level (USD/JPY) recently. Both times (in May & July), when retail FX traders reached 53% & 54% net long, the USD/JPY also swiftly reversed course, marking a significant swing high in both instances. This is similar to what happened last week and portends further near-term weakness. While, technical (weekly & daily) indicators have turned lower, only a sustained loss of the support in the 111.00 region (USD/JPY) would shift overall momentum back to the downside and re-open the 109.54/110.36 area to the downside.

Speculative euro positioning by non-commercial traders continued to modestly improve, according to the latest COT data. This marks a string of fresh all-time highs (in terms bullish sentiment), highlighting the largest net long position by (non-commercial) speculators on record. The EUR/USD has managed to stabilize after reaching a fresh 3-month low the prior week. This may have been be partly driven by the retail FX population, which according to recent (retail FX trading) positioning data, had recently begun to buy euros up until the beginning of last week.