Latest CFTC Release Dated September 18, 2007:
The COT Index is the percentile of the difference between net speculative positioning and net commercial positioning measured over the last 52 weeks. A reading close to 0 suggests that a bottom is forming and a reading close to 100 suggests that a top is forming. The readings are for the actual currency, not the currency pair. For example, a reading of 100 on the Canadian Dollar suggests that the Canadian Dollar is close to a top (USDCAD close to a bottom).
Readings of 95 and higher as well as 5 and lower are in boldfaced red type to indicate potential market extremes. The last 4 weeks of the COT Index are shown because it is just as important to know where the index is coming from. For example, an increasing index is bullish until the index is extreme (near 100), at which time the risk of a reversal or pause in the trend increases.
Explanation of Charts:
Net Non-Commercial (speculative) Positioning (top red): consists of trend followers, extremely net long at market tops and extremely net short at market bottoms
Net Commercial Positioning (top blue): consists of hedgers, extremely net short at market tops and extremely net long at market bottoms
Difference between Net Non-Commercial and Net Commercial (green): referred to as COTDiff, net commercial subtracted from net non-commercial, extremely net long at tops and extremely net short at bottoms
Open Interest (black): total number of contracts currently open, the most number of contracts are often open at significant market tops and bottoms
COT Index (bottom blue): see description just below the COT Index table
US Dollar Index: Speculators selling USD, commercials buying USD, and open interest increasing all point to a continuation of weakness. However, positioning is close to extreme territory (notice where the COTDiff line and COT Index line are). The path is lower until the COT Index hits 0 and turns up.
EUR: The outlook for the Euro is the same as the US Dollar, but in reversel. Conditions are inching closer to extreme but until conditions are extreme, there is no reason to fade Euro strength.
GBP: The British Pound has sold off considerably (most visible on the crosses) and speculative positioning is close to flipping to net short. The last flip to net short occurred in May 2005 and preceded a 10 figure move lower in the GBPUSD. COTDiff is the lowest it has been in over a year, as evidenced by the COT Index at 0. From a short term perspective, the Pound may be due for a bounce to correct a short term extreme but longer term, a bigger turn may be in the works.
CHF: The CHF may be reaching a top (USDCHF bottom) speculators are the longest they have been since June 2006 (when the USDCHF bottomed just below 1.20). If speculators return to a net short position, then it is likely that a significant low is in place. If speculators continue to add to longs, then a more significant downtrend may be underway. The reading is similar to the GBP in that at least a short term countertrend movement is expected.
JPY: The reversal following extreme net short positioning in late June led to extreme net long positioning. We would like to see open interest begin to rise as the JPY strengthens before proclaiming a new bull market in JPY. Some additional selling may be needed in order to more fully correct the quick JPY rally that occurred in late June-mid-August.
CAD: Speculative long positions are at an all time record and commercial short positions are very close to an all-time record. This makes a strong case for a major top to form in the CAD.
AUD: The bulk of the movement in recent weeks has been due to liquidation of longs. Speculators remain net long and are likely to add to this position until a market extreme is reached, at which point we will look for a top and reversal. The Aussie remains bullish.
Written by Jamie Saettele, Technical Currency Strategist for DailyFX.com