US Dollar Index: Implied net positioning continues to decline and is now at -160,001. Net positioning is inching towards where it was when bottoms were formed in December 2005, June 2006, and November 2004. Our commercial interest index is at 81. A reading of 100 is extremely bullish. The dollar is likely to slide a bit further but every tick lower increases the risk of a reversal.
EUR: The interpretation of the data is the same for the euro, but in the opposite direction. After falling from extreme levels in May, euro longs have increased sharply. The commercial interest index is at 21. A reading of 0 indicates that a top is close at hand. The EURUSD is likely to continue its ascent until a new record of euro longs is reached and the commercial interest index is near 0.
GBP: British pound longs decreased from a record level last week. The commercial interest index has been at 0 for 4 consecutive weeks now. Looking back at our data, the most similar scenario occurred in late September when the index stood at 0 for 3 consecutive weeks. That led to a 500+ pip decline. We are looking for a top and reversal in Cable. Given that the other currencies appear to have additional upside potential against the buck, selling pounds on the crosses may be the best opportunities.
CHF: CHF short positions continue to decrease from extreme levels, signaling that the CHF should strengthen for an extended period. Sentiment is improving and the outlook for the CHF is bullish.
JPY: JPY net positioning increased from record short levels and the risk of a reversal remains high. The chart above shows that the previous two records of extreme bearishness led to reversals. The psychological backdrop is ripe for a reversal again so be on the lookout for a top in the JPY crosses, especially the GBPJPY and CADJPY.
CAD: Net positioning regarding the CAD increased slightly from the week prior. The commercial interest index is at 1 after registering 5 the week before. These are the lowest levels since the last week in June, first week in July of 2006, when the USDCAD began its rally from 1.1000 to 1.1875. The CAD is in the process of forming a top (USDCAD bottom).
AUD: Net positioning in the Aussie increased from 58,097 to 65,158 last week. There is little evidence that the Aussie is topping out. Tops are almost always accompanied by extreme positioning and positioning is not at a bullish extreme. There is no reason to fade the uptrend.