How does CFTC positioning data impact foreign exchange rate markets? (And why does it matter?)

Traders are classified as either commercial or non-commercial.

The positioning of the non-commercial traders can be used as a proxy for the speculative side of the market.

Extreme net long or net short positions are taken as an indication of the market’s vulnerability to a sharp reversal and are identified by the interpretation of positioning ‘percentile’ vs historical norms.

For a squeeze to occur from a stretched long/short position, however, a separate catalyst such as fundamental news or a breach of a key technical level is usually required.

Percentiles situated ‘below 20%’ or ‘above 80%’ have in the past proved to be sensitive trigger zones and therefore can provide valuable information in formulating short to medium term currency views.