US Dollar Index: Implied speculative position deteriorated once again for the greenback, with the trend clearly towards selling the currency at multi-decade lows. Yet improving commercial interest may bring a recurrence of what we saw several months ago, with a peak to bring a US dollar bounce.
EUR: Euro net speculative positioning improved for the second consecutive week at 58,214. Given that this is significantly below previous peaks, the healthy net positioning leaves scope for continued EURUSD rallies. At 58.2k net non-commercial longs, it is actually in oversold territory as it relates to 2006 and 2007 speculative positioning. A test of 1.4000 seems likely from a speculative sentiment standpoint.
GBP: Pound positioning was improved as of September 11th, but this will clearly change in through upcoming data as the currency has fallen significantly from recent heights. This significantly decreases the significance of any interpretation of dated positioning numbers. That being said, the improvement in speculative longs from previously oversold conditions gave scope for continued GBPUSD gains. Such an outlook has clearly changed in light of recent price action.
CHF: Speculators have grown very bullish of the CHF (bearish the USDCHF), with positioning flipping to net long territory for the first time since 2006. Despite the bullish signal, the currency remains in strongly overbought territory through short term trade. Given Swiss commercial positioning at its most net short in a year, we are likely to see a USDCHF correction before fresh lows.
JPY: Similar to the CHF, Yen speculative positioning remains in extremely overbought territory through recent trade. Though the medium term remains towards JPY buying (USDJPY selling), overstretched Non-commercial positioning suggests a retracement is likely through short term trade. This is likewise confirmed by heavily net-short Commercial positioning, which is at its most negative since early 2006.
CAD: Speculators continued to press CAD long positions as the currency set fresh multi-decade highs against the greenback. Such overextended positioning leaves it susceptible to a near-term retrace, but we are reminded of the fact that speculative traders can remain overstretched for weeks at a time before worthwhile retracement. We remain cautiously bearish the CAD (bullish the USDCAD) given that Non-commercials are extremely long and Commercials are extremely short.
AUD: Speculative positioning is significantly improved, while Commercial net-longs have pulled back through recent trade. All in all the AUD remains in relatively oversold conditions against the USD, with continued gains in Non-commercial net longs leaving scope for continued rallies through the medium term. Though our stance is less bullish on the turn in Commercial positioning, we feel that risks remain to the upside through medium term AUD price action.
Written by David Rodriguez, Currency Analyst for DailyFX.com