Speculators may be too comfortable with US Dollar short positions. Commercials are positioned for a dollar decline. Positioning relative to the last 13 weeks is considered extreme in many cases, which favors the commercials.
The COT Index is the percentile of the difference between net speculative positioning and net commercial positioning measured over a specific number of weeks (either 52 or 13). 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. 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]
[B]US Dollar Index:[/B] The 13 week index has rolled over from 100, which is bearish. This suggests that speculators are ‘too long’.
[B]
Implications:[/B] bearish
[B]
Euro[/B]
[B]EUR:[/B] Speculators are net short and commercials net long. However, the 13 week index has increased from 0. This is bullish for the euro.
[B]Implications:[/B] bullish
[B]
British Pound[/B]
[B]GBP:[/B] Similar to the euro, British Pound speculators are net short and commercials net long. However, the index at 50 is neutral.
[B]Implications:[/B] neutral
[B]
Australian Dollar[/B]
[B]AUD:[/B] Australian Dollar speculators are net short and commercials net long. The index recently turned up from 17, which is a low enough level to suggest that a pessimism extreme was reached.
[B]
Implications:[/B] bullish
[B]
New Zealand Dollar[/B]
[B]NZD:[/B] New Zealand Dollar speculators are net short and commercials net long. However, the 13 week index is at 0. This warns that the difference between speculative and commercial positioning may need to decline prior to resumption of the downtrend.
[B]Implications:[/B] bullish
[B]
Japanese Yen[/B]
[B]JPY:[/B] Speculators are net long Yen and commercials net short Yen. However, the 13 week index is at 0. This indicates that commercials are the longest they have been in 13 weeks and speculators the shortest they have been in 13 weeks. This is bullish for the Yen.
[B]Implications:[/B] bullish (bearish USDJPY)
[B]
Canadian Dollar[/B]
[B]CAD:[/B] Speculators are net short CAD and commercials net long CAD. However, the 13 week index is at 0. This indicates that commercials are the longest they have been in 13 weeks and speculators the shortest they have been in 13 weeks. This is bullish for CAD.
[B]Implications:[/B] bullish (bearish USDCAD)
[B]
Swiss Franc[/B]
[B]CHF:[/B] Speculators are net short and commercials net long. However, the 13 week index has increased from 8, indicating that a pessimistic extreme towards CHF may have been reached.
[B]Implications:[/B] bullish (bearish USDCHF)
Jamie Saettele publishes Daily Technicals every weekday morning (930 am EST), COT analysis (published Monday mornings), technical analysis of currency crosses throughout the week (EUR on Tuesday, JPY on Wednesday, GBP on Thursday, AUD on Friday), and the DFX Trend Index every day after the NY close. He is also the author of Sentiment in the Forex Market.
Contact at <[email protected]>