Middle East Conflict Drives Massive Dollar Squeeze in Forex Markets: COT Report Analysis 2026

The latest Commitment of Traders (COT) report reveals a dramatic shift in forex market positioning as the Middle East conflict triggers what can only be described as a massive dollar squeeze. Hedge funds have slashed their bearish US dollar bets by approximately 80% over just three weeks, representing one of the most rapid positioning shifts in recent forex market history. For traders following the forex and commodities markets, this data provides critical insight into where institutional money is flowing.

What the COT Report Tells Us About Forex Positioning

The Commitment of Traders report, published weekly by the CFTC, reveals the positions held by different categories of traders in the futures market. The latest data, covering the week ending March 10, 2026, shows a forex market in the midst of a historic repositioning event driven by the Middle East conflict.

According to analysis from Saxo Bank’s Head of Commodity Strategy Ole Hansen, gross dollar shorts versus eight IMM futures have been cut by around 80%, leaving the remaining short position at just USD 4.7 billion — down from significantly higher levels before hostilities broke out. This unwind represents billions of dollars flowing into dollar-denominated assets.

Why Hedge Funds Are Rushing Into the Dollar

The Middle East war is supporting dollar strength through multiple interconnected channels that are reshaping the forex landscape:

• Safe-haven demand: When geopolitical risk rises, global investors instinctively move capital into dollar-denominated assets, the world’s ultimate safe harbor
• Energy price dynamics: Oil is priced in dollars, and surging crude prices increase global demand for the greenback
• Positioning adjustments: Many funds held large short-dollar positions that have become untenable in the current environment
• Capital flight: Energy-importing economies see capital outflows as their economic outlooks deteriorate

Currency-by-Currency COT Breakdown

The repositioning hasn’t been uniform across all currencies. Here’s how institutional investors are positioning in each major pair:

Euro (EUR) — Biggest Loser

The EUR long position was slashed by 23%, equivalent to USD 4.6 billion, ahead of EUR/USD’s slide to a seven-month low. Europe’s extreme vulnerability to energy supply disruptions through the Strait of Hormuz makes the euro particularly exposed. The continent faces a potential energy crisis that could dwarf previous episodes.

Japanese Yen (JPY) — Growing Shorts

Short positions in the yen increased by USD 2 billion as Japan’s energy import dependency weighs heavily on the currency. Despite verbal intervention warnings from Finance Minister Katayama, speculative traders continue to bet against the yen. The divergence between official rhetoric and market positioning creates significant intervention risk.

British Pound (GBP) — Under Pressure

GBP shorts increased by USD 1 billion as the UK economy faces the dual challenge of elevated energy costs and slowing growth. The pound’s position as a risk-sensitive currency is working against it in the current environment.

Australian Dollar (AUD) — The Outlier

In contrast to other major currencies, the Australian dollar has found support from its commodity exposure. Australia’s position as a major energy and metals exporter provides a natural hedge against the Middle East disruption, making AUD the standout performer.

Commodity Positioning Reveals the Full Picture

The COT data on commodities reinforces the forex narrative and provides additional context for currency traders:

• Crude Oil: Combined net long in WTI and Brent surged by 83,000 contracts to a 15-month high of 466,000, driven by fresh longs and short covering
• Gold: Despite strong price gains, traders remained hesitant to add new longs — increases were primarily short covering, suggesting consolidation rather than conviction
• Copper: Net selling extended to an 11th consecutive week as stockpiles reach multi-decade highs
• Grains: Combined net long hit a June 2022 high as the energy-food price link drives agricultural commodity buying

The International Energy Agency’s unprecedented stockpile release has so far failed to calm oil markets, with traders clearly not seeing immediate relief from supply disruptions. This has profound implications for forex pairs of energy-importing nations.

What This Means for Retail Forex Traders

Understanding institutional positioning through COT data gives retail traders a significant edge, but it must be interpreted correctly. Here’s how to use this information in your trading:

Follow the Smart Money — But With Caution

While the trend toward dollar strength is clear, the speed of the unwind suggests we may be approaching exhaustion. When 80% of shorts have already been covered, the remaining fuel for dollar buying diminishes. This creates potential for a snap-back if geopolitical tensions ease.

Watch for Positioning Extremes

Extreme one-sided positioning often precedes reversals. The current dollar-bullish consensus is approaching levels that historically mark turning points. However, in genuine crisis environments, trends can persist longer than positioning data suggests.

Protecting Your Capital During Market Dislocations

Market disruptions of this magnitude attract both opportunity and danger. Unregulated forex brokers and scam operations thrive in volatile environments where traders are desperate for returns or afraid of losses. Always verify your broker’s regulatory status before depositing funds.

Key warning signs of forex scams during volatile markets:

• Brokers that suddenly change margin requirements without notice
• Platforms experiencing suspicious outages during major moves
• Signal providers claiming to predict geopolitical events
• Unrealistic profit claims during extreme market conditions
• Pressure to increase deposits to “take advantage” of the crisis

FAQ: COT Report and Forex Positioning 2026

What is the Commitment of Traders (COT) report?

The COT report is a weekly publication by the Commodity Futures Trading Commission (CFTC) that breaks down the open interest in futures markets by trader category. It reveals how commercial hedgers, large speculators (hedge funds), and small speculators are positioned.

How quickly can forex positioning shift during a crisis?

As the current data shows, positioning can shift dramatically within weeks. The 80% reduction in dollar shorts over three weeks is among the fastest repositioning events in modern forex markets, driven by the urgency of the Middle East conflict.

Does the COT report predict future forex movements?

The COT report is not predictive but provides context for understanding market dynamics. Extreme positioning often signals potential reversals, while rapid shifts indicate strong conviction behind current trends.

How does oil pricing in US dollars affect forex markets?

Since oil is globally priced in US dollars, rising oil prices increase demand for dollars from importing nations, naturally strengthening the currency. Countries with large oil import bills, like Japan and most of Europe, see their currencies weaken as they sell domestic currency to buy dollars for oil purchases.

Should I trade in the same direction as hedge funds shown in the COT report?

While following institutional positioning can be informative, it’s important to remember that COT data is published with a delay. By the time retail traders see the data, some of the move has already occurred. Use it as one input among many in your trading decisions, alongside technical analysis and fundamental research.