Perhaps unexpectedly, the euro has continued to scale record-heights despite relatively healthy levels of long interest. Our 52-week COT index remains at a very low 8/100, while the 13-week Index likewise remains depressed at 33/100. Both signals make the case that, from a positioning perspective, the euro can continue to rally significantly against the US dollar. We may have to wait until both short and longer-term COT indices hit extremes before calling for a clear EURUSD top.
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The COT Index is the percentile of the difference between net speculative positioning and net commercial positioning measured over the last 52 weeks. 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. The last 4 weeks of the COT Index are shown because it is just as important to know where the index is coming from. 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 Index: [/B]The 52 week COT index is at 69, indicating that plenty more selling is possible. Yet we see that the shorter-dated 13-week index hit rock-bottom at 0 through last week’s trade, and a subsequent recovery suggests that short-term momentum may fall in the USD’s favor. Longer-term the trend and positioning is undeniably bearish, but this does not rule out further correction through the coming weeks of trading.
[B]Signal: [/B]Longer-term bearish, short-term bullish.
[B]EUR: [/B]Perhaps unexpectedly, the euro has continued to scale record-heights despite relatively healthy levels of long interest. Our 52-week COT index remains at a very low 8/100, while the 13-week Index likewise remains depressed at 33/100. Both signals make the case that, from a positioning perspective, the euro can continue to rally significantly against the US dollar. We may have to wait until both short and longer-term COT indices hit extremes before calling for a clear EURUSD top.
[B]Signal: [/B]Bullish
[B]GBP[/B]: Our COT index readings for the GBPUSD are significantly less clear, as our longer-term outlook remains bullish while the shorter-term suggests that we have seen a multi-week GBPUSD top. Indeed, our 13-week indicator has just turned down from extremes of 100/100, and a similar reaction in price implies that we may see further British Pound losses through the near term. Longer-term, a 52-week Index at 29 tells us that the GBPUSD may resume its uptrend after further short-term corrections.
[B]Signal: [/B]Short-term bearish, long-term bullish.
[B]CHF:[/B] Both the 13-week and 52-week COT Indices are nearing extremes at 83/100 and 90/100, respectively, which tells us that the USDCHF may see further corrections through upcoming currency trading. Combined with price extremes, we would argue that risks continue to weigh to the topside for the US dollar against the Swiss Franc, and the CHF may look to lose against other major counterparts as well.
[B]Signal: [/B]Bearish
[B]JPY: [/B] Both short-term and long-term COT indices have reached extremes and turned lower, which supports calls for further Japanese Yen weakness through the short-term. Indeed, we may see the USDJPY trade higher through the coming weeks of trade, as positioning has grown increasingly one-sided when viewed through CFTC futures data. Of course, positioning may remain extreme for weeks at a time, but such data suggests that we are closer to a multi-week USDJPY bottom than a top.
[B]Signal: [/B]JPY Bearish, USDJPY Bullish
[B]CAD: [/B]The short-term CAD COT index has turned down from extremes and trended lower, which suggests that we may see further USDCAD strength through the coming weeks of trade. Yet the longer-term view shows that fewer and fewer traders hold USDCAD-short positions on an indexed basis, which tells us that we are nearing a potential short-to-medium term top in the USDCAD. Our reading remains CAD-bearish (USDCAD bullish), but we will wait for a significant turn in positioning to establish a firmer bias.
[B]Signal: [/B]USDCAD bullish but nearing a top
[B]AUD:[/B] COT indices in the Aussie remain in effectively neutral territory, leaving relatively little directional bias for the AUDUSD.
[B]Signal: [/B]Neutral
[B]NZD:[/B] The 13-week COT index has hit extremes at 0/100, while the 52-week index currently rests at a similarly overextended 14/100. Such developments would suggest that recent NZDUSD selling may subside on increasingly one-sided interest. As such, we maintain a bullish bias on the pair when viewed from a COT positioning point of view.
[B]Signal: [/B]Bullish