Latest CFTC Release Dated June 5th , 2007:
US Dollar Index: Net positioning (implied) fell last week, but positioning remains above the 12 week average and the percentile indicator is sloping upward. The outlook is for continued USD strength as psychology is shifting from bearish to bullish.
EUR: The same holds true for the Euro, but in the opposite direction. That is, the percentile indicator exhibits negative slope and positioning is decreasing from extreme levels. Tops are always accompanied by extremely long speculative positioning. Notice that positioning from early 2002 to early 2004 was relatively stable and did not change much, but the EURUSD skyrocketed. This is the sign of a healthy bull market. Longs got out of control in December 2004 (circle) and the EURUSD plummeted soon thereafter. Compare the 2002-2004 net positioning and price action with the late 2005 to early 2007 net positioning and price action. Net longs skyrocketed, yet the rate of change in price was small when compared to the 2002-2004 EUR: The same holds true for the Euro, but in the opposite direction. That is, the percentile indicator exhibits negative slope and positioning is decreasing from extreme levels. Tops are always accompanied by extremely long speculative positioning. Notice that positioning from early 2002 to early 2004 was relatively stable and did not change much, but the EURUSD skyrocketed. This is the sign of a healthy bull market. Longs got out of control in December 2004 (circle) and the EURUSD plummeted soon thereafter. Compare the 2002-2004 net positioning and price action with the late 2005 to early 2007 net positioning and price action. Net longs skyrocketed, yet the rate of change in price was small when compared to the 2002-2004 period. A market that will not go significantly higher on that kind of buying is a big warning sign (for bulls).
GBP: British pound longs increased last week, but remember that the numbers released Friday reflect data from Tuesday. With Cable reversing mid-week, this week?s data will most certainly show a large decrease in long positions and increase in short positions. Considering that the GBP and EUR are positively correlated, we expect GBP weakness going forward.
CHF: CHF short positions are near historically extreme levels, suggesting that the CHF may be near a bottom (USDCHF top). Still, the percentile indicator is steadily declining and is not yet indicating an extreme psychological state. Once the indicator dips below 10 and turns up, we will begin to look for a top in USDCHF. For now, the trend is strong towards CHF selling.
JPY: Speculators scaled back JPY shorts on the week, but short positions are in the extreme range that has historically created tops in the USDJPY. Additional JPY losses (USDJPY gains) are possible but the psychological backdrop (extreme pessimism towards Yen) favors a turn and sizeable decline in the USDJPY.
CAD: Net long positions remain extreme, increasing the odds of a turn in the CAD. As we wrote last week, “Historically, the trend will continue for a few more weeks before the percentile indicator rolls over from above 90 and a top is in place.” Expect some consolidation to be followed by a new low (below 1.0548) before a major bottom is formed.
AUD: Aussie positioning is above the 12 week average. The bull market looks healthy as positioning is below the extreme set earlier this year. Specs may pile on longs in a blow-off top before a top forms. With the percentile indicator turning up, we are looking for continued strength over the next month before a larger turn.