[B]Speculative long positions (COT) are at their highest level since the November 2005 USD top (EURUSD and GBPUSD bottoms). This is strong evidence that the USD decline is not yet over. Sure, the buck [I]could[/I] continue to rally as sentiment remains extreme (as defined by COT) but a turn towards USD weakness is probable in the coming week(s). [/B]
Latest CFTC Release Dated June 3, 2008:
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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][B]The 52 week COT index is at 98 and the 13 week index is at 82. 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. The buck could continue to rally as sentiment remains extreme but expect a turn towards weakness in the coming week(s). [/B]
[B][/B]
[B]Implications: [/B][B]Bearish[/B]
[B]EUR: [/B][B]The 52 and 13 week indexes are at 2 and 8. The analysis for the Euro is the same as that for the USD, but in reverse. In other words, expect a Euro low to form in the coming week(s).[/B]
[B][/B]
[B]Implications: [/B][B]Bullish[/B]
[B]GBP[/B]: [B]The 52 and 13 week indexes are at 2 and 8. The British Pound is in the exact same position as the Euro.[/B]
[B]Implications: [/B][B]Bullish[/B]
[B]CHF:[/B] [B]The 52 and 13 week readings are at 24 and 8. The 13 week index has been close to 0 (indicating a bearish sentiment extreme) for weeks, so expectations are for the CHF to strengthen. [/B]
[B]Implications: [/B][B]Bullish[/B]
[B]JPY: [/B] [B]The 52 and 13 week COT indexes are at 47 and 0. The 13 week index has hit 0 3 times in the past 2 months, indicating that a turn towards JPY strength is likely. Of course, the Yen continues to weaken, so use caution when attempting to trade this reversal.[/B]
[B][/B]
[B]Implications: [/B][B]Bullish[/B]
[B]CAD: [/B][B]The 25 and 50 week COT indexes are at 57 and 83. Recent commentary mentioned that “the 13 week index is very close to a bullish extreme so look for a reversal towards CAD weakness (USDCAD strength)”. This reversal has occurred and CAD weakness is expected to continue. [/B][B][/B]
[B]Implications: [/B][B]Bearish[/B]
[B]AUD:[/B] [B]The 52 and 13 week COT indexes are at 67 and 33. Neither index indicates potential for a bullish or bearish extreme, so there is little to gather from this week’s readings.[/B]
[B][/B]
[B]Implications: [/B][B]Neutral[/B]
[B]NZD:[/B] [B]The 52 and 13 week COT indexes are at 4 and 8. Sentiment has been at or very close to a bearish extreme since March, so risk is to the upside.[/B]
[B][/B]
[B][/B]
[B]Implications: [/B][B]Bullish[/B]