Record CAD Longs Suggest Larger USDCAD Correction

Latest CFTC Release Dated June 12th , 2007:

[B]US Dollar Index:[/B] Implied net positioning increased from -85,681 to -18,691. Positioning remains above the 12 week average and the percentile indicator is sloping upward and above 50… The outlook is for continued USD strength as psychology is shifting from bearish to bullish.

[B]EUR:[/B] Speculators continue to sell euros. Net positioning fell from 84,965 to 50,638 last week and the percentile indicator is below 50. The last 2 drops below 50 were false signals (October 2006 and February 2007) but the previous drop below 50, in April of 2005, led to a big decline. The psychology has shifted from euro bullish to euro bearish.

[B]GBP:[/B] British pound longs also fell, and our interpretation of the COT data favors the bear side. Positioning is below the 12 week average and the percentile indicator is below 50. We are looking for British Pound weakness to accelerate in the coming weeks.

[B]CHF:[/B] 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. Once the indicator turns up from below 10, we will begin to look for a top in USDCHF (and/or for the CHF to outperform the euro and pound). For now, the trend is strong towards CHF selling.

[B]JPY:[/B] Yen positioning was little changed last 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, especially since the percentile indicator has turned up. Watch the 125.00 figure closely.

[B]CAD:[/B] We wrote last week that “net long positions remain extreme, increasing the odds of a turn in the CAD.” The USDCAD appears to have turned higher as CAD longs are at a record high. Continued USDCAD strength is favored.

[B]AUD:[/B] Aussie positioning remains 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 larger decline takes place. With the percentile indicator turning up, we are looking for continued strength over the next month before a larger turn.