EUR Longs at Record High - Watch for Reversal

Latest CFTC Release Dated February 27th , 2007:
• JPY, CHF, and JPY Positioning Improving From Extremely Bearish Levels

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.

US Dollar Index: Implied dollar positioning fell below 0 last week and the percentile indicator has turned over from above 90. While this is bearish, the percentile indicator remains above the bullish/bearish divider of 50. Be wary of shorting dollars given the bearish signals from the other currencies.

EUR: Euro net longs have made all-time record highs the last 2 weeks at 99,326 and 102,598, breaking the former record from early December of 98,265 (when the pair topped at 1.3370). As such, look for a major reversal to the downside.

GBP: We mentioned two weeks ago that “long positioning fell significantly from 92,728 (near record highs) to 48,598. Such a major drop in such a short amount of time may very well be the beginning of a longer term downtrend.” While longs have increased the past two weeks to 68,028, the bearish implications from the big drop in longs on 2/16 remain.

CHF: CHF net speculative positioning has increased a good amount the past two weeks from extremely bearish levels. The percentile indicator has rallied above 10, indicating that the CHF may begin to outperform the other currencies (but not necessarily the USD).

JPY: Yen positioning has also increased the past two weeks from record short levels. The interpretation is the same as that of the CHF. Look for the JPY to also outperform.

CAD: CAD positioning has improved from record short levels also. The percentile indicator has increased above 10 so look for the CAD to also begin outperforming (USDCAD should be topping out).

AUD: Positioning is little changed since last week. The percentile indicator continues to decrease from extreme readings. The topping scenario that we proposed in recent weeks remains.