US Dollar Bought Heavily by Commercial Hedgers is USD Bullish

With commercial hedgers long the largest amount of US dollars since early December, a multi-week low in the Dollar Index is close (if not already in place). 56.7% of the Dollar Index is the Euro, so a multi-week high is close to being established, if not already in place, in the EURUSD.

Latest CFTC Release Dated May 1st , 2007:

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 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 close to 100% and 0% indicate increased potential for a top / bottom. Speculative interest (this week?s percentile reading adjusted in order to fit between -100% and 100%) is plotted below for each currency.

US Dollar Index: Implied dollar short positioning decreased significantly last week (from -157,571 to -93,425). Positioning is just below its 12 week average and has improved from extremely bearish levels. Commercial hedgers? buying is athe highest since 12/12/2006 - the USD index had bottomed a week before. If a multi-week low is not already in place, then one will likely be put in place either this week or next.

EUR: Euro net longs slipped following 3 record setting weeks for euro long positions. As mentioned last week, this action looks like a blowoff top, similar to the ones that occurred in December and May 2006. With sentiment one-sided, the risk of a reversal is the highest that it has ever been.

GBP: Net longs fell slightly last week but positioning remains above its 12 week moving average, thus sentiment remains bullish. However, it is interesting to note the divergence between positioning and price. That is, positioning is less bullish now than in January yet the GBPUSD is higher now than in January. This increases the potential for a sharp decline.

CHF: Recently, speculators have sold CHF in droves and bought back shorts slowly, suggesting that the larger trend is towards CHF weakness (USDCHF strength). We saw this dynamic in action last week as CHF short positions increased from -16,851 to -31,170. The interpretation remains the same.

JPY: Net short positions increased last week for the 5th week in a row as speculators have returned to selling JPY. Positioning is below its 12 week moving average, indicating that bearish sentiment is strong.

CAD: Speculators continue to build longs in the CAD as positioning is now positive (longs > shorts). This is longer term CAD bullish. The CAD should continue to gain until speculators are extremely long CAD, after which a top in CAD will come to the forefront.

AUD: Net long positions fell for the second week in a row and positioning is now below the 12 week average, suggesting that the Aussie run may be near an end. With longs falling from record levels, the risk of additional weakness is high. Commercial buying is low (11th percentile when compared with the last 52 weeks), which is bearish.