The COT index for the Japanese Yen has been at 0 for 6 weeks now. This indicates a bearish sentiment extreme and warns that the Yen may gain in value significantly (bearish Yen crosses).
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 plummeted from 100, indicating that speculators were extremely long US dollars, the speed with which speculators are exiting longs and going short (and commercials covering shorts and going long) favors USD strength.
[B]Implications:[/B] bullish
[B]
Euro[/B]
[B]EUR:[/B] Speculators are net short and commercials net long. The 13 week index has soared from 0. Now at 83, speculators have bought too many euros in too short a time.
[B]
Implications:[/B] bearish
[B]
British Pound[/B]
[B]GBP:[/B] The 13 week index is at 50, which is neutral. There is no sentiment extreme from which to hold a contrarian view.
[B]
Implications:[/B] neutral
[B]
Australian Dollar[/B]
[B]AUD:[/B] The 13 week index is at 100. Tops occur when the index is at or close to 100, so the probability of a top forming in the next few weeks (or that one is already in place) is high.
[B]
Implications:[/B] bearish
[B]
New Zealand Dollar[/B]
[B]NZD:[/B] The 13 week index has increased from 0 and is at 67. This is usually bullish but the bullish sentiment extreme in the AUD warns of downside in NZD (at least relative to the USD). However, this does suggest that NZD will outperform the AUD.
[B]
Implications:[/B] neutral
[B]
Japanese Yen[/B]
[B]JPY:[/B] 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] The 13 week index has increased from 0 and is at 25. This is bullish for CAD individually, but beware of shorting USDCAD (because USD is bullish as well). A cross that one could play CAD strength with is AUDCAD (short).
[B]
Implications:[/B] bullish
[B]
Swiss Franc[/B]
[B]CHF:[/B] The 13 week index has increased significantly and is now at 83. Such frantic CHF buying by speculators and CHF selling by commercials is bearish for the CHF (bullish USDCHF).
[B]
Implications:[/B] bearish (bullish 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]>