Speculators in the International Monetary Market were net short of dollars in the week ended August 16 to for the first time in over four months, data released on Friday showed.
Currency speculators dramatically flipped to a net short dollar position against six major currencies - the euro, yen, sterling, Swiss franc, Australian and Canadian dollars - of 1,286 contracts, data from the Commodity Futures Trading Commission's Commitments of Traders report showed.
In the previous week, they had held an overall net long dollar position of almost 50,000 contracts.
The last time IMM speculators were net short of dollars was April 5.
For much of the last three months, IMM traders' net long dollar contract positions exceeded 100,000 every week.
The sharp reversal in bets on the dollar was most evident in the yen, Canadian dollar and sterling, and coincided with the dollar's slide, which bottomed out last Friday.
"This shows that specs were taking part in the dollar-bashing in the week to August 16," said Sean Callow, senior currency strategist at Westpac Banking Corp in New York. "But now, it seems they're caught the wrong way."
The dollar index, a broad measure of the dollar's weighted value, fell as low as 86.76 last Friday, its lowest since late May. But the dollar has rebounded this week, and the dollar index is now around 88.50.
So with the dollar having recovered from these lows and positioning relatively neutral, a major breakout in either direction seems unlikely for now.
"In the scheme of things, it's indicative of a market that's not yet ready for the next big move," Callow said.
The IMM data on speculative positioning are often used by analysts as an indicator of future market direction.
For example, an extreme net short position often signals an imminent rebound in a currency because dealers would be more inclined to lock in profits and trim their bets.
Being "short" a currency is effectively a bet that it will weaken, while "long" positions reflect expectations a currency will strengthen.
IMM traders went net long of sterling in the week to August 16 for the first time since early May, and they extended net long Australian dollar positions to their largest since the end of March.
IMM accounts were still net long of dollars versus the yen and Swiss franc, two of the lowest-yielding currencies among the majors, reflecting the positive interest rate "carry" traders still get from holding dollars against certain currencies.