As the new COT report came out a couple of hours ago I can start analysing the situation, look what net positions were the big changes last week and check if they match up with my fundamental bias. As the strategy is designed and I still test it, I definitely will enter into a trade on Monday and hopefully will end up like this week!
So what has changed in the COT report and which currencies are looking good to trade based on market sentiment? The following percentages refer to the Non-commercial speculators, which segment I find the most important to make my decisions.
[B]CAD[/B]: although the currency is more balanced than before, still only 37.09% of traders are long on the currency and it closed a pretty good week. The positive week for CAD is interesting for me because most of the major CAD news came out negativ, still the currency managed to gain pips against most other currencies. Sentiment and Fundamentals make me being bullish on CAD and a candidate to go long with next week.
[B]GBP[/B]: speculators are still bullish on the GBP, but we will see how long this remains. Last week 35.64% were short on GBP, this week 36.96%. It is not a great difference, but there is still some chance in my opion to push prices higher. Even if GBP does not look too bullish for me, it is prints positive data so the Fundamentals a slightly bullish for me. In this case market sentiment shows to go short, but I will not do that and live this currency out of my trade.
[B]JPY[/B]: now the Yen is the winner of risk aversion and as I mentioned in my last trade almost all people were bearish on it, only having 17.53% of speculators long on JPY last week. This ratio changed now, but it looks still very bearish with 20.49% net long positions on the JPY. The Fundamental news were more bullish than expected so this currency can be a candidate as well to go long! My only problem is with JPY that it is very dependant on risk aversion and the situation of risk appetite changes every day, making me more difficult to analyse what is coming next week.
[B]EUR, AUD and CHF[/B]: the results are quite mixed, giving no clear way to trade, I will do not choose them. The EUR is extremely balanced and there are the elections on the weekend which might have a larger effect on the currency, so it is another reason to leave it alone for the sentiment analysis based on the COT report.
[B]USD[/B]: I checked the major pairs, USD is slightly bullish but not in every market. Other currencies are measured vs. USD so unfortunately I do not have a ratio on that one. However Fundamentals are showing a mixed picture so I will not trade this currency.
[B]NZD[/B]: there was not much change since last week, the bullish bias is still on the side of the Kiwi. 15.79% traders were short on NZD last week, this week this number increased to 17.86% which is still very bullish. The Kiwi was very bullish last year and gained a lot against the other major currencies. Is it time for a reversal? Well carry trade is still on the side of NZD and makes it very attractive, still the currency is not gaining vs the other majors in the last months/weeks so it does not seem to be a big mistake to go long with it in the right spot.
Summary: based on the sentiment report I “have to” go [B]short with NZD[/B] again. Now many of you would find this a suicide based on the last year’s NZD action, but I test this system and have to see how it performs. The sentiment says me short, so I go short.
For going on I have an option. I can choose the JPY again like last week, or we will see another setting with the CAD. Checking the daily charts, going long on NZD/JPY and on NZD/CAD both look good. Always remember: “Trend is your friend.” I have for some reason a good feeling for CAD, so next week [B]I choose CAD to go long with[/B].
[I] Lets make a conclusion: on Monday, 26.05.2014. I will enter a short position on NZD/CAD.[/I] As this thread is to learn and optimize the system, I do not really suggest to trade this setup.
However you are very welcome to share your ideas and to discuss it with me. We might find a better setup to enter another trade instead of that on Monday.
Have a nice weekend!