Latest CFTC Release Dated January 30th , 2007:
Dollar Sentiment Now Extremely Bullish
Strong Commercial Buying Suggests JPY Reversal
The charts used to interpret the Commitment of Traders data now include both net positioning and the percentile indicator. The percentile indicator value is the current net positioning as a percentile when measured against the last 52 weeks. A 4 week moving average is applied to that number in order to smooth out the data. A reading above 90 indicates extreme bullishness and a reading below 0 extreme bearishness. Market turns occur at extreme levels of optimism and pessimism (bottoms at pessimism and tops at optimism). Therefore, readings below 10 on the percentile indicator give scope to bottom formation. Readings above 90 give scope to a topping formation.
US Dollar Index: Implied dollar positioning increased significantly last week. Implied positioning is at 99,750, up from 53,812 one week prior. The percentile indicator is above 90, indicating extremely bullish sentiment. The risk of a pullback is high.
EUR: Euro longs increased for the second week in a row, albeit marginally. The percentile indicator is below 50, which indicates bearish sentiment. The longer term trend remains towards euro selling.
GBP: Traders cut longs significantly last week. Speculative positioning was at 94,728 two weeks ago and is at at 76,927 now. Such a large decrease in long contracts could mark the beginning of a change in sentiment towards the Pound. The percentile indicator remains extreme at above 90, thus rick of a reversal is high.
CHF: CHF net speculative positioning remains negative as speculators increased shorts for the 8th week in a row. Positioning is now at -59,580. The percentile indicator continues to decrease but is not yet extreme. Only an extreme reading gives scope to a major turn. The trend remains towards CHF selling.
JPY: Yen positioning continues to worsen. Speculators increased shorts for the 8th week in a row to set a new record for speculative short contracts (-173,005). Positioning is extreme (JPY bearish) as indicated by the percentile indicator, which is at 0. Commercial buying has been strong for 3 weeks in a row now. The last time that commercial buying was this strong occurred in December 2005 when the USDJPY topped out at 121.38. The risk of a reversal is extremely high.
CAD: CAD positioning improved for the third week in a row (albeit slightly). Sentiment remains extremely CAD bearish as the percentile indicator is below 10. The improvement in sentiment the last three weeks could be the beginning of a bottoming in CAD sentiment and thus price (topping out in USDCAD).
AUD: Traders cut longs last week and the percentile indicator continues to decrease from extreme readings. The topping scenario that we proposed in recent weeks remains valid.