COT Report Analysis - a thread on market sentiment

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804

Hey guys…

Check this website out.

United States Average Hourly Earnings | 2006-2014 | Data | Chart | Calendar

They’ve covered pretty much everything.

I’m looking to short EURUSD soon. I’m just trying to find as much conviction as I can before I click the sell button. I’m planning to wait until ECB rate decision and monetary policy statement and I’m in afterwards. However in the meantime I have to do some reading on what is expected of key economic indicators for the dollar. We’ve got employment data, trade balance, PMI and NFP tomorrow. Its going to be a tricky one. I’ll have to give it some thought as to when I should join the bears on this one.

I went short with EURAUD yesterday came out with +65pips. Yeah guys, AUD is beating it all up with better than expected data releases showing resilience.

Anyone in with NZDUSD short ? Looks like the pair is headed down again after some correction. Probably due to risk aversion - recent news on Ukraine conflict commdolls have all /at least AUD and NZD/ had a great run. Now its headed down again. I’m in with NZDUSD short again I’ll add more to my position.

Good trading everyone!

805

So QE might be in the cards for ECB monetary policy statement. From what I understood QE is a way to lower interest rates indirectly. Sort of. ECBs main benchmark interest rate is at 0.15%. Not much to cut ? Well a rate cut can always be expected I think for this upcoming ECB meeting.

However with QE inflation is supposed to soar higher /modest increase at least/. Inflation in the eurozone is way too low at an annual 0.3 percent. And increasing inflation is apparently ECB’s main goal for now. I think the initial response to QE will be positive if Draghi ever brings it up /very likely that he will/ but only temporary.

806

I’ve been pondering about this guys. I do know risk aversion plays a big part but so does market sentiment and general economic condition of that country /interest rates and so on/. Lets just say as an example conflict dies down in Ukraine and they finally have reached an agreement with Russia. Everything is back to normal. /I know we’re far from it/ But hypothetically speaking.

Then whats going to happen to high yielding currencies for instance NZD , with the highest rate out of the bunch. Will specs go long on NZD regardless of its economic condition /they’re not doing great , we all know that/. I’m just wondering how all these factors will play out in that scenario. Anyone ? Peterma, FE?

807

Hi rookie,

sorry, I have no time. Just read everything fast. You are right. At least on the short-term, higher yielding currencies should go up and USD should get a hit. The question is which currencies can hold to their gain (maybe AUD) and which not (maybe NZD and CAD).

Watch out for the news and play it well!

FE

808

Great news, I was really concerned. Do not forget there are still plenty of news coming up so protect your profits. I’m only in one trade and will look to sell EURGBP and buy NZDCHF. That’s about it.

809

Well I dumped my GBP long, it was entered on the premise of better services PMI, which we got, but the market had zero interest so exited at end of Asia.

Went short on EUR/USD before the fall - reason was that I saw the initial reaction to the ‘rumour’ - an old market rule is ‘always sell the rumour’ - will exit that now, as FE says - do not be greedy.

See you guys in a couple of weeks - off on hols.

810

Hi Philip,

great news, heh? :slight_smile: I thought you were going to try the pair on the long side. At least sounded like that! I am hope you changed your mind.

Guys, I missed out the whole day. The EUR/USD trade went great (unexpected rate cut did good to me and I guess to you), GBP also retraced which is good. Still my day ended up quite bad, exotic currencies just got a huge hit. I do not get it why. Maybe someone could write something about what happened or what you guys think about that.

USD was strong, but not exteremely, it was in my opinion no risk off sentiment so I do not know what happened to my exotic currencies which does not make me happy.

It is sad the Peter is on a long holiday when the volatility just picks up, but I wish a very nice holiday and come back with fresh energy!

811

Thursday.
CAD: +5 -0 2
AUD: +5 -0 2
USD: +5 -0 2
NZD: +4 -3 0
JPY : +3 -4 0
CHF: +1 -5 1
GBP: +1 -6 0
EUR: +0 -6 1

Comms took it guys. +11

Majors vs. Comms
CAD: +4 -0 1
AUD: +4 -0 1
USD: +1 -0 2
NZD: +4 -1 0
JPY : +0 -3 0
CHF: +0 -3 0
GBP: +0 -3 0
EUR: +0 -3 0

Notes:

The CAD and AUD were not down against anybody. NZD was only down against one Major, USD. And was down against their 2 brothers.
CAD, AUD, USD were all even against each other. Interesting. And another thing I must mention. Those 3 are so equal it’s not funny. They are trending high, (long term and short term) against everyone else. Never seen that before. So, is it how strong the USD is, against 2 Comms, or them 2 just so in sync? So when we talk about the Majors vs. Comms we actually seem just to be talking about the USD against AUD and CAD.

Ok guys . Bedtime.

Mike

812

FE: No I was never considering longing Euro, I think if you go back to my post you will see I was saying to [I]stay away[/I] from Euro. I was contemplating whether to open the short position [I]before[/I] or [I]after[/I] ECB, giving me a chance to save my money if ECB does not act.

I did not enter any position before the ECB, well done to those of you guys who did. However my USDNOK benefited from the trade and jumped more than 80 pips Now however I caught the bounce in EURAUD, EURNZD and EURGBP. I do not expect to see a day with a movement like yesterday, but over a few weeks I will be very happy with these trades for sure.

I also expect to see a trade of the month go to either short EURAUD or EURCAD, so I will be looking to enter the latter but for now my money management system does not allow me to at the moment.

813

I think yesterday has set how the rest of the year will pan out.
[B]US[/B] If today’s employment data are below expected, then we should look to buy the dip as the dollar is now poised to keep going up towards the end of the year.
[B]AUD[/B] I think we have a situation in Australia where the central bank and government are in a transitional phase and they are a long way off their goals. Ideally they want the currency price to fall but the only way they can do that is by bringing rates down, which was ruled out by RBA for 2014. With strong investment coming in I see AUD to keep going strong till the [I]of 2014[/I] may be [I]even against USD[/I]
[B]EUR[/B] I see the price of Euro tumbling well into 2015 and may be 2016. 1.20 target for EURUSD is not a longshot by all means, but may be that is a 2015 target.
[B]NZD[/B] I think NZD is the best long term play we have right now. I still expect it to fall down further for some time. However if you ask me what currency should I buy now to close my position in a year it will have to be NZD. First its a yielding currency, and remember that their central bank has already started [I]hiking rates[/I] The only reason NZD went down is because their central bank announced they will not hike further in 2014, but hikes will return in 2015. So buying now is a good medium-term investment.
[B]GBP [/B]I believe GBP is in a retracement rather than a reversal. I do believe we are not ready for a rally yet, but may be we will find one in November or December.

814

Good analysis Philip!

I think I agree with pretty much everything you’ve wrote down.

However as for NZD I want to see it go down a little more than what you’re expecting it to. They’ve cut most of their forecast probably due to falling dairy price which is very unlikely to pick anytime soon as supply is forecasted to be well over demand in the coming years further pressure on NZD.

Rate hike might not be in the cards for NZD anytime soon. If key economic indicators fail to meet expectation further measure from it’s central is likely , rate cut ? Could be. Depending on how bad the situation really is. Well have to see on that one.

As for EUR, even with such measures it may well be tough for euro to get back on track I agree. I don’t expect inflation rising up anytime soon neither. Their plan is to run inflation near 2%. Until inflation and other key indicators pick up I’m short on euro. It’s going to be a while.

I see aud getting stronger and usd running on everyone trending higher until the end of the year. You’re right Philip we’ve pretty much figured out how the rest of the year will be like.

I’m wondering why you didn’t mention JPY and CHF I would like to hear your opinion on them as well.

815

I’m rooting for below forecast NFP data Philip much like you. So that we can get a better price to ride on USD.

Here an article for you FE: I think this should explain sudden hit on exotic pairs.

816

I’m not expecting below than expected NFP, quite the contrary I’m looking for a significantly higher than expected reading. I said that [B]if[/B] we get a lower reading, it is a good opportunity to buy.

EDIT: I see the forecast was revised significantly higher than the expectation now its a tougher call. But I have to say all data related to unemployment have been higher than expected, so we’ll see how this one goes.

817

Good weekend guys!

Well we have some very interesting numbers here!!
Let’s see what happened this week.

Total pips:
AUD: +1114
CAD: +664
USD: +644
NZD: +418
JPY : -99
CHF: -434
EUR: -880
GBP: -1427

Notes:
AUD strongest currency this week.
GBP weakest currency this week!!! (And you thought EUR was)

COMMS took the week. 4th in a row. Let’s put it into perspective.

JAN
M 26
M 10
M 18
– 0
FEB
C 19
M 4
M 20
M 12
MAR
C 29
M 10
C 24
C 43
APR
C 4
M 12
M 8
M 7
C 9
MAY
C 24
C 17
M 2
C 5
JUN
M 6
C 36
C 3
C 16
JUL
M 5
C 8
C 2
M 15
M 30
AUG
M 6
C 18
C 23
C 17
SEP
C 27

Don’t be concerned with the number so much. It is by how much. Just compare that number. Should be able to gauge by that.

This weeks Majors vs. Comms: (total pips against the other side)

AUD: +984
CAD: +675
NZD: +537
USD: -12
JPY : -252
CHF: -322
EUR: -651
GBP: -959

So you have to look and compare that line up against the total pips line up.
We see:
AUD: +130 against their own. AUD total pips against NZD and CAD. AUD = +51 up on NZD. AUD = +79 up on CAD.
CAD: -11 against their own. CAD pips against AUD and NZD. CAD = -51 down on AUD. CAD = +40 up on NZD.
NZD: -119 against their own. NZD pips against AUD and CAD.
USD: +632 against their own. USD pips against GBP, JPY, EUR, CHF.
JPY : +153 against their own. JPY pips against GBP, USD, EUR, CHF.
CHF: -112 against their own. CHF pips against USD, GBP, JPY, EUR.
EUR: -229 against their own. EUR pips against USD, GBP, JPY, CHF.
GBP: -468 against their own. GBP pips against USD, JPY, EUR, CHF.

Speaking of M vs. C—Let’s not forget our model. AUD/USD chart. Make note of the major resistance line.
This is the weekly AUD/USD chart going back to the start of this year.

2014-09-06_0537.jpg700×314 21.9 KB

There’s a lot of good info here guys. Yeah, it’s history, but maybe we can get some kind of edge by knowing this. Like Majors gonna finally take it next week???

I’ll be back with my sentiments, trading plan, thoughts.

Mike

818

So, let’s see what the COT Report tells us this week. Very important that the percentile factors and net positions will always show the non-commercial speculators vs. data from the previous week:

[B]AUD[/B]: 73.34% vs. 70.68% previous. Net position: 49 047 vs. 41 938 previous. This is the most bullish read since I follow the report.

[B]CAD:[/B] 57.47% vs. 53.96%. Net position: 9 191 vs. 5 663. The trend is changing very often.

[B]CHF:[/B] 29.09% vs. 26.69%. Net position: -13 167 vs. -13 039.

[B]GBP:[/B] 53.76% vs. 56.11%. Net position: 9 448 vs. 15 467. Since I make the reports this was the most bearish reading.

[B]NZD:[/B] 74.13% vs. 78.23%. Net position: 10 172 vs. 11 841.

[B]EUR:[/B] 21.23% vs. 20.87%. Net position: -161 423 vs. -150 657. The most bearish reading since I follow the report. Open interest: 419 850, this is also a very high reading.

[B]JPY[/B]: 10.44% vs. 13.74%. Net position: -117 308 vs. -102 891. This is the most bearish reading since I follow the report.

[B]USD Index:[/B] looking at the 3yr charts, the USD Index has almost reached its’ most bullish value.

[I]Summary[/I]: there was a large change in net position and bearish sentiment by speculators with silver and gold. Philip can maybe say something about that.

[I]Trade setups for the week[/I]: this week I would not like to post trade setups as I was mostly missing the two most important days, Thursday and Friday. I am more interested to see your analysis and your setups.

I can say though that I will try to avoid CAD in the next time period. It is changing continuously; I cannot clearly see which way it should go. It was bearish for a while but it was bullish in July. Now it makes better reports again and it can gain from USD strength too. I will rather stay away with CAD and see how it develops.

819

Hi u3, (Rookie, Philip and Mike)

I did what Mike said last time: I looked through the articles the last days, made some likes so you know I am reading the thread but I really do not have too much time to write. But all of you are doing a great job out there until Peter and me are not around.

You guys did a great work. I like Philips analysis, rookie’s reaction and Mike’s weekly analysis. I have to say the same as rookie: I agree with Philip, but with NZD I am rather careful. Also thanks rookie for great article.

I still did my daily work as I think it is important to do. I can not do though at this point trade setups.

The only thing I am a bit missing are the trade setups. Usually on Saturday more COT analysis are out there, this week my COT analysis was the first one on Saturday night. On the other side, Mike has already posted his findings which is good. Comms 4th week, did not expect that before the week. However GBP and EUR did not give a chance for the Majors. Mike, can you please describe the last data you made? I do not understand what those pips mean (AUD +130, CAD -11 etc.)

Keep up the good work guys, on Monday I am there again

820

So here is the rating of the currencies from most strong to weakest based on commercials net position:

  1. Australian Dollar: net sellers
  2. Canadian Dollar: net sellers
  3. US Dollar: net sellers
  4. New Zealand Dollar: net sellers (-4,909)
  5. Pound Sterling: net sellers (-1,999)
  6. Swiss Franc: net buyers
  7. Japanese Yen: net buyers
  8. Euro: net buyers

It is worth noting that commercials are close to turning net buyers on both GBP and New Zealand Yen. I put their net value to highlight that matter. I think this piece of info compliments FE’s report as well.

Now we look at this week’s [B]COT Index[/B] to see which of these currencies are near a top or a bottom. A lower reading than [I]5[/I] represents a top for the currency and a higher reading than [I]90[/I] represents a bottom. The list is sorted from the lowest index value to highest:

  1. USD 30.9%
  2. AUD 33.7%
  3. GBP 43%
  4. CAD 46.1%
  5. NZD 59.4%
  6. CHF 95.9%
  7. Yen 96.4%
  8. Eur 100%

What’s important to note is that even though the bearish currencies (CHF, Yen and Euro) are near an extreme, none of the bullish currencies are even close to a top yet. So we are not really too worried about a reversal yet.

I think that presenting the report this way is probably best suited for our purposes. It is now basically a confirmation tool to the main report done by FE, rather than an alternative one.

I also wanted to share some seasonal trend for the month of September. It is generally a good month for all the commodity currencies. It is the second strongest month for both New Zealand and Australia, and the third strongest for Canada (a quirky note, last month is the strongest month for Canada seasonally, Wish I knew that beforehand). As for majors, it is a good month for GBP, it is the third strongest month for the currency.

I’m happy to report on seasonal patterns for a particular currency pair (if there are any) but I can’t do it for all pairs. So feel free to ask me if you have a pair in mind.
I watched the seasonal pattern for the two pairs I’m in (EURNZD and EURAUD) and it happened to be the [I]best[/I] month to short both pairs. So this is a real test to the seasonality tool.

I’m not planning to enter any new trades this week. I will just manage the two trades I have. I will shoot out any chart that I see has an interesting opportunity coming up. Having said that I’m looking for GBP to give me a reason this week to buy it. I’m even contemplating buying its weakness ahead of the independence vote (against the JPY, no way I’m buying it against CAD, AUD or USD). It is the strongest month for GBPJPY, on the technical front we have a beautiful set up, in terms of correlation it correlates with USDJPY historically which is doing very strong, all that is left is for fundamentals to align as well and I may enter this trade.

821

Hey guys…

So here’s this weeks COT report.

COT data analysis 2 Sep-page-001.jpg700×495 37.6 KB

The commdolls
AUD, NZD and CAD

Non commercials: Specs have once again increased their net position /longs/ on AUD for the 4th consecutive week highest net positive reading so far this year. Although last weeks reading was the highest this year, if we go 4 years back last weeks reading which came out at 49047 is far from extreme. The highest net positive reading was at 103,376 in 2012 Dec. Specs are bullish on AUD and given fundamental factors I think there’s still more room to the upside for AUD. *If you guys remember RBA head Stevens speech last week he touched on the subject possibility of housing market bubble - elevated level of housing price due to low interest rate. From the way I see it and one reason that could explain specs bullish stance on AUD besides positive economic indicators that we’ve been seeing could be rate hike. Although Steven isn’t in any hurry to move the interest higher, I guess specs sentiment matters more than what Stevens positioning is.

As for NZD specs have reduced both their longs and net position /longs/. Specs have been reducing their net position /longs/ on NZD for the 6th consecutive week. Speaking from specs point of view looking at historical data there’s still more room for NZD to plunge further down.

As for CAD however while specs added on to their net position /longs/ buyers have reduced their longs. Last tuesdays sudden add ons to net position /longs/ was a surprise as we kept seeing specs dropping off their net position /longs/ for the 5th consecutive week prior last tuesdays data. Specs positioning appear mixed on CAD.

Commercials: As for commercials we saw them buying more NZD for the 4th consecutive week /counting from Aug 5th/ as NZD is moving down further. Commercials sold CAD and AUD for the 2nd and 3rd consecutive week as price keeps pushing higher especially AUD.

The majors
EUR and GBP

Non commercials: Specs have reduced their net position /longs/ and longs last week now standing only at 9448. There has been some fluctuation in between but its worth noting specs have been reducing their net position /longs/ since July 8 this year at a rather steady rate. From fundamental perspective specs may have dissapointed in BoE not raising interest rates sooner than later on top of that Scotlands independence vote is probably keeping investors cautious about pound regardless of economic indicators. Specs appear more bearish than bullish or neutral.

As for EUR specs have added on their net position /shorts/ and longs progressively for the 4th consecutive week now net negative reading standing at -161,423 while it may seem like EUR has reached an extreme like I mentioned in my previous report /I’ll keep repeating this guys ;p we tend to forget/ its far from it in reality, looking at historic data 4 years compilation.
Specs are clearly bearish on EUR.

Commercials: Commercials bough more EUR last week and they have been buying EUR for the 3rd consecutive week as EUR plunges further down. However for GBP they’ve reduced their net position /shorts/ now GBP net negative position standing at 7550 reversal from negative readings to positive could be in the cards for pound sooner than later if commercials keep buying pound at this rate.

Safe havens
JPY and CHF

Non commercials: Specs have added on their net position /shorts/ and reduced their longs for JPY for the 4th consecutive weeks. The highest net gative position reading was 143822 /4 years historic data/ and last week net position /shorts/ came out at -117308 coming quite closer to extreme levels. However there’s still more room to the downside. We’ll have to look at Philips part, for an opportunity to go long on yen. For now specs appear bearish on yen.

As for CHF specs have increased both their longs and net position /shorts/. Prior last tuesdays report, specs have been reducing their net position /shorts/ for the 4th consecutive week sending mixed signals as regards to specs positioning on CHF.

Commercials: Commercials have increased their longs and net position /longs/ on both CHF and JPY last week. If we look at Philips analysis COT index CHF is at 95.9% and JPY at 96.4% pretty close to reaching a bottom. However as for when to look for opportunities to long CHF and JPY we need to rely on upcoming key economic indicators and general market sentiment.

Conclusion

AUD - Bullish
NZD - Bearish
CAD - Neutral
EUR - Bearish
JPY - Bearish
CHF - Neutral to bearish
GBP - More bearish than neutral

822

Hi Philip,

Short feedback: I like how you brought in you COT Index findings and seasonality tools. I am interested in it and I also like the setups. I do not have much experience with seasonal setups so please make later on (end of month) an evaluation on your seasonal trades how they worked.

I have no idea though how this independence vote will go. I have one question to you: what time frame did you use for the COT Index? Because I usually look for 3 years. We have to look a bit into this one, because I look fast on the document where I wrote about COT Index and have a bit other values from the book. I copy paste: “A 90% COT reading suggests a commercial buying climax; a 5% reading implies commercial selling climax. For a buy signal, that the current commercial net position is within 10% of the most bullish net position over the look-back period (usually 3 years). For a market top signal, I usually like to see the commercial net position within 5% of the bottom of the historic look-back range. Downtrends: are the time to pay attention to COT sell signals. Bear markets ignore COT buy signals, and consequently the failure of the COT buy signal to hold support served as convincing evidence of a developing bear trend. Uptrends: There is a simple rule for uptrends: COT sell signals are usually premature, sometimes by a lot. In bull markets, we watch for commercials to point out buying opportunities, but their proclivity for scale-up selling makes them too expensive to imitate as sellers.” I just thought I throw it there from the Williams book.

Good trades

823

Hi rookie,

great reports as always. I like the point where you say we should not forget that we are far away from EUR extreme based on a longer TF. This is a very important and true point. The AUD rate hike idea is intersting, I have not heard about it until this point.

I have two questions: I do not use much the CRB Index, you and Peter more. So, can you please explain how come Comms were so strong last week and the CRB Index still decreased? Why is that? What does this means?

The other question in open interest. I checked very fast my notes and do not find the point on it. Maybe you can help (would have been great if we had Peter there for this question). So, for the EUR open interst is just increasing every single week. I do not have a conclusion exactly what this tells us, maybe next week when I have more time I can look into this one. I find this rise very intersting, maybe you know what that one is.

The last sentence of your analysis is very important.