Forecasting Forex with COT Data

COT data suggests that the US dollar is closer to bottoming than topping although a bottom may not form for another several weeks.

Latest CFTC Release Dated June 16, 2009:

                                              [B]Week (Data for   Tuesdays)[/B]

                                   [B]COT   Impications[/B]

                                   [B]13   Week Index (Current)[/B]

                                   [B]13   Week Index (Previous)[/B]

                                                     US Dollar

                                   bottoming

                                   83

                                   [B]0[/B]

                                                     Euro

                                   topping

                                   83

                                   83

                                                     British Pound

                                   topping

                                   92

                                   [B]100[/B]

                                                     Australian Dollar

                                   neutral

                                   58

                                   75

                                                     NZ Dollar

                                   topping

                                   [B]100[/B]

                                   [B]100[/B]

                                                     Japanese Yen

                                   neutral[B][/B]

                                   67

                                   42

                                                     Canadian Dollar

                                   bearish

                                   75

                                   [B]100[/B]

                                                     Swiss Franc

                                   topping

                                   [B]100[/B]

                                   83

The COT Index is the percentile of the difference between net speculative positioning and net commercial positioning measured over a specific number of weeks (either 52 or 13). 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. 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[/B]

[B]US Dollar Index[/B]: The 13 week index has increased from 0, which indicates a bearish sentiment extreme. Sentiment extremes occur near bottoms so expect a bottom and reversal in the USD within a few weeks.

[B]Implications[/B]: bottoming

[B]Euro[/B]

[B]EUR[/B]: The 13 week index has rolled over from 100, which indicates a turn from a sentiment extreme. Tops tend to occur in close proximity to readings of 100.

[B]Implications[/B]: topping

[B]British Pound[/B]

[B]GBP[/B]: The 13 week index has rolled over from 100, which indicates a turn from a sentiment extreme. Tops tend to occur in close proximity to readings of 100.

[B]Implications[/B]: topping

[B]Australian Dollar[/B]

[B]AUD[/B]: The 13 week index is at 58 after having rolled over from 100 during the first week of June (the top). With the AUDUSD failing to fall in line with the declining index, confidence in the early June high staying intact is low.

[B]Implications[/B]: neutral

[B]New Zealand Dollar[/B]

[B]NZD[/B]: The 13 week index is at 100, which indicates a sentiment extreme. A top typically accompanies index readings of 100.

[B]Implications[/B]: bearish

[B]Japanese Yen[/B]

[B]JPY[/B]: The 13 week index is at 67 and has not been extreme recently, which is neutral.

[B]Implications[/B]: neutral

[B]Canadian Dollar[/B]

[B]CAD[/B]: The 13 week index has rolled over from 100, indicating a turn from a bullish sentiment extreme. Sentiment extremes occur at turns so favor CAD weakness (USDCAD bullish).

[B]Implications[/B]: bearish (USDCAD bullish)

[B]Swiss Franc[/B]

[B]CHF[/B]: The 13 week index is back at 100, which indicates a sentiment extreme. A top (USDCHF bottom) typically accompanies index readings of 100 so expect a turn in the next several weeks.

[B]Implications[/B]: topping (USDCHF bottoming)

[I]Jamie Saettele publishes Daily Technicals every weekday morning (930 am EST), COT analysis (published Monday mornings), technical analysis of currency crosses throughout the week (EUR on Tuesday, JPY on Wednesday, GBP on Thursday, AUD on Friday), and the DFX Trend Index every day after the NY close. He is also the author of Sentiment in the Forex Market.

Contact at <[email protected]>[/I]