COT data indicates extreme sentiment across the board. The situation is tricky though as sentiment extremes can last for weeks. The readings suggest that USD bulls keep risk tight in case of a reversal.
The COT Index is the percentile of the difference between net speculative positioning and net commercial positioning measured over a specific number of weeks (13). A reading close to 0 is bearish if the currency in question has reversed from a uptrend and is bullish if the currency has been declining for a significant amount of time. A reading close to 100 is bullish if the currency in question has reversed from a downtrend and is bearish if the currency has been rallying for a significant amount of time.
Readings of 95 and higher as well as 5 and lower are in boldfaced red type to indicate potential market extremes. 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.
[B]US Dollar[/B]
The index has turned from 100, which indicates a turn from extreme optimism (see previous instances on the chart when the indicator is blue and changes). This can sometimes lead to a pause or even reveral in the uptrend.
[B]Euro[/B]
The index is at 0 and has been for 3 weeks now, which indicates extreme pessimism (see previous instances on the chart when the indicator is red). This can sometimes lead to a pause or even reveral in the downtrend so favor the downside with caution.
[B]British Pound[/B]
The index is at 0, which indicates extreme pessimism (see previous instances on the chart when the indicator is red). This can sometimes lead to a pause or even reveral in the downtrend. However, with the GBPUSD trading at its lowest level since May 2009, this may be one of the instances when extreme pessimism lasts for several weeks.
[B]Australian Dollar[/B]
The index is at 0, which indicates extreme pessimism (see previous instances on the chart when the indicator is red). This can sometimes lead to a pause or even reveral in the downtrend. However, with the AUDUSD recently trading at its lowest level since September 2009, this may be one of the instances when extreme pessimism lasts for several weeks.
[B]US Dollar[/B]
The index has turned from 100, which indicates a turn from extreme optimism (see previous instances on the chart when the indicator is blue and changes). This can sometimes lead to a pause or even reveral in the uptrend.
[B]New Zealand Dollar[/B]
The index is at 0 (second week now), which indicates extreme pessimism (see previous instances on the chart when the indicator is red). This can sometimes lead to a pause or even reveral in the downtrend. However, with the NZDUSD recently trading at its lowest level since September 2009, this may be one of the instances when extreme pessimism lasts for several weeks.
[B]Japanese Yen[/B]
Yen sentiment has turned from a bearish extreme. This is bullish for the Yen.
Note-this is a chart of the Yen futures contract, not the USDJPY (the inverse of this chart would look similar to the USDJPY).
[B]Canadian Dollar[/B]
CAD sentiment recently turned from a bullish extreme and is now at a bearish extreme for the second week in a row. Turning from a bullish extreme is bearish but the 0 sentiment reading indicates extreme pessimism. Since the reading comes after a strong uptrend, favor the downside.
Note-this is a chart of the CAD futures contract, not the USDCAD (the inverse of this chart would look similar to the USDCAD).
[B]Swiss Franc[/B]
The index is at 0, which indicates extreme pessimism (see previous instances on the chart when the indicator is red). This can sometimes lead to a pause or even reveral in the downtrend. However, with the USDCHF trading at its highest level since August 2009, this may be one of the instances when extreme pessimism lasts for several weeks.
Note-this is a chart of the CHF futures contract, not the USDCHF (the inverse of this chart would look similar to the USDCHF).
Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Friday evenings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forum. He is the author of [I]Sentiment in the Forex Market[/I]. Follow his intraday market commentary and trades at DailyFX Forex Stream. Send requests to receive his reports via email to [email protected].