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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.
[B]US Dollar Index: [/B]The 52 week COT index is at 98 and the 13 week index is at 92. This is the highest that the 52 week index has been at since the November 2005 USD top. A reading this high tells us that the USD decline is not over yet. Expect USD weakness to continue.
[B]Implications: [/B]Bearish
[B]EUR: [/B]The 52 and 13 week indexes are at 14 and 58 after being at 2 and 8 three weeks ago. The indexes have turned from a bearish sentiment extreme, therefore the Euro is expected to advance.
[B]Implications: [/B]Bullish
[B]GBP[/B]: The 52 and 13 week indexes are at 20 and 75 after being at 2 and 8 last week. Readings have held close to 0 for much of 2008 as the GBPUSD has traded sideways. The analysis for the GBP is the same as that for the Euro; expect strength.
[B]Implications: [/B]Bullish
[B]CHF:[/B] The 52 and 13 week readings are at 27 and 58. The 13 week index bounced from 0 in mid-may, triggering a CHF bullish (USDCHF bearish) bias. That bias remains in place.
[B]Implications: [/B]Bullish
[B]JPY: [/B] The 52 and 13 week COT indexes are at 22 and 0. We wrote last week that “the 13 week index has hit 0 6 times in the past 3 months, indicating that a turn towards JPY strength will be violent when it does happen.” The turn occurred last week. Yen strength is expected to continue.
[B]Implications: [/B]Bullish
[B]CAD: [/B]The 25 and 50 week COT indexes are at 0 and 0. A bearish sentiment extreme is in place, indicating that a turn towards CAD strength is probable.
[B]Implications: [/B]Bearish but bottoming
[B]AUD:[/B] The 52 and 13 week COT indexes are at 69 and 25. Expect strength to continue until the indexes are near 100.
[B]Implications: [/B]Bullish
[B]NZD:[/B] The 52 and 13 week COT indexes have remained close to 0 since March. Sentiment towards the NZD has turned from a bearish extreme. The NZD should rally.
[B]
Implications:[/B] Bullish