Dollar Forming a Top as Implieds Decrease

Latest CFTC Release Dated February 5th, 2007:

• Dollar Forming a Top as Implieds Decrease

Note: The charts used to interpret the Commitment of Traders data now include both net positioning and the percentile indicator. The percentile indicator value is the current net positioning as a percentile when measured against the last 52 weeks. A 4 week moving average is applied to that number in order to smooth out the data. A reading above 90 indicates extreme bullishness and a reading below 0 extreme bearishness. Market turns occur at extreme levels of optimism and pessimism (bottoms at pessimism and tops at optimism). Therefore, readings below 10 on the percentile indicator give scope to bottom formation. Readings above 90 give scope to a topping formation.
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US Dollar Index[/B]: Implied dollar positioning decreased significantly last week. The percentile indicator indicates extreme bullishness (above 90). The decrease in longs with extreme conditions gives scope to a topping out in the greenback.

EUR: Euro longs fell from 62,579 to 45,330 last week. The percentile indicator is below 50, which indicates bearish sentiment. The longer term trend remains towards euro selling.

GBP: Buyers and sellers continue to battle it out as longs increased this week (following a week where longs fell). Net speculative long positioning is close to its all time high, which was registered 2 weeks ago at 94,728. The percentile indicator indicates extreme bullishness (above 90) thus the risk of a reversal to the downside is high.

CHF: CHF net speculative positioning remains negative but speculators decreased shorts for the first time in 9 weeks. The percentile indicator continues to decrease amd is close to extreme levels. The significant decrease in short positioning could be the beginning of CHF buying (and/or short covering).

JPY: Yen positioning improved last week for the time after declining for 8 consecutive weeks. Positioning is extreme (JPY bearish) as indicated by the percentile indicator, which remains at 0. The decrease in short positioning at extreme bearish levels increases the probability of a reversal towards Yen strength (USDJPY weakness).

CAD: CAD positioning slipped slightly this past week. We said last week that “the improvement in sentiment the last three weeks could be the beginning of a bottoming in CAD sentiment and thus price (topping out in USDCAD).” The reversal scenario still holds since the percentile indicator has turned up at extreme bearish levels. Notice previous instances of the indicator turning up while below 10. This indicates that a major change in sentiment is taking place.

AUD: Traders cut longs last week for the second week in a row. The percentile indicator continues to decrease from extreme readings. The topping scenario that we proposed in recent weeks remains.