Commercial Demand Favors Aussie Strength

Latest CFTC Release Dated August 28, 2007:

US Dollar Index: Implied net positioning decreased (short positions increases relative to long positions). This could represent the beginning of dollar selling. However, given the increase in net positioning from close to historic bearish levels in July, we favor the idea that the dollar is forming a significant bottom.

EUR: The trend has been towards Euro selling since May but the EURUSD has traded sideways since then. Given the outlook, for the dollar, one would have to favor the downside in the EUR/USD, but not necessarily the Euro. Net positioning is little changed from last week.

GBP: The British Pound is in a similar situation (compared to the Euro). The trend is towards selling and has been since July. Last week?s net positioning was little changed. Since positioning declined from sich extreme levels in July, we expect more downside action for the Pound, especially against the USD.

CHF: The trend remains towards CHF buying following the sentiment extreme registered in June. Although CHF selling took place last week, speculative positioning is close to flipping from short to long, which is a longer term bullish CHF signal.

JPY: Long speculative positioning increased and short speculative positioning fell for the 9th straight week. The trend is clearly towards Yen buying now, especially with net speculative positioning long JPY. Sharp pullbacks in JPY crosses are always a risk, especially given how quickly the market flipped from net short to net long.

CAD: CAD net positioning was little changed last week. The trend is towards CAD selling (much like the GBP). Last week, we saw an increase in CAD shorts and a decrease in CAD longs. The last 3 weeks have seen fresh selling as well (speculative shorts have increased), indicating that any CAD weakness is not solely attributed to liquidation of old longs.

AUD: The bulk of the movement in recent weeks has been due to liquidation of longs. Since the week that the AUDUSD topped at .8870, speculative long positionis have decreased from 75,651 to 24,197 (68%). Additionally, commercial longs are the highest since March, which is just before the AUDUSD skyrocketed over 1,000 pips. Strong commercial demand often precedes large bull moves. The AUD should strengthen, especially on the crosses. Look for bullish an opportunity in the AUDCAD.

Written by Jamie Saettele, Technical Currency Strategist of