COT Update: Middle East Conflict Drives Dollar Squeeze and Broad Commodity Buying

Author: Ole Hansen, Head of Commodity Strategy

Date: March 16, 2026

Key Points

• The weekly Commitment of Traders (COT) update reveals significant changes in futures positions by hedge funds in forex and commodities for the week ending March 10, 2026.
• In the forex market, dollar shorts are rapidly unwinding due to escalating tensions in the Middle East, leading to a strong shift towards the dollar, negatively impacting the EUR, JPY, and GBP.
• Speculators have increased their exposure to crude oil, raising the combined net long position to a 15-month high, while volatility has led to net selling in surging fuel products.
• Despite strong gains in precious metals, traders are hesitant to add long positions, with most of the net increase attributed to short covering rather than new longs.
• In the grains sector, increased participation from funds is noted as the market rallies due to energy links and food security concerns.

Forex Market Analysis

The ongoing conflict in the Middle East is bolstering the U.S. dollar primarily through safe-haven demand and energy price dynamics. As geopolitical risks rise and oil prices increase, global investors tend to favor dollar-denominated assets, putting pressure on energy-importing economies.

During the reporting week, there was a significant tilt towards dollar buying, with speculators reducing their dollar-short positions. Notably, the long position in the euro was reduced by 23%, amounting to approximately USD 4.6 billion, as the EUR/USD pair fell to a seven-month low. Additionally, short positions in the JPY and GBP increased by USD 2 billion and USD 1 billion, respectively.

Over the past three weeks, the buildup to the conflict has led to an 80% reduction in bearish dollar positioning, leaving a remaining short position of USD 4.7 billion.

Commodity Market Overview

The Bloomberg Commodity Index saw a 4.1% increase during the reporting week, with gains across all major sectors. Energy prices surged due to the conflict, marking the largest disruption to global crude oil and refined product flows in decades. Precious metals also benefited from safe-haven demand, while industrial metals were supported by rising aluminum prices amid supply disruption risks from the Persian Gulf.

In the energy sector, the combined net long position in WTI and Brent crude oil rose by 83,000 contracts to a 15-month high of 466,000 contracts. This increase was primarily driven by new long positions, while short positions were reduced. However, rising fuel prices and volatility prompted some hedge funds to trim both long and short positions in gasoline and diesel contracts.

In precious metals, traders remained cautious about adding long positions despite recent gains, with most increases coming from short covering. Copper saw continued net selling for the 11th consecutive week, although at a slowing pace, as stockpiles reached multi-decade highs.

The grains sector experienced strong buying, lifting the combined net long position across six contracts to a June 2022 high of 592,000 contracts. Fresh year-on-year highs were recorded in soybeans, corn, and KCBT wheat, although the CBOT wheat contract maintained a net short position for an unprecedented 178 consecutive weeks since October 2022.

Understanding the Commitments of Traders Report

The COT reports, issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe, provide a breakdown of open interest in futures markets by user groups. The focus is primarily on speculators, such as hedge funds, as they tend to react quickly to market changes and can significantly influence price movements.

Conclusion

The current geopolitical tensions in the Middle East are reshaping market dynamics, particularly in the forex and commodities sectors. The strong demand for the U.S. dollar and the significant shifts in commodity positions reflect the ongoing volatility and uncertainty in the global markets.