The COT Index is the percentile of the difference between net speculative positioning and net commercial positioning measured over a specific number of weeks (13). A reading close to 0 is bearish if the currency in question has reversed from a uptrend and is bullish if the currency has been declining for a significant amount of time. A reading close to 100 is bullish if the currency in question has reversed from a downtrend and is bearish if the currency has been rallying for a significant amount of time.
Readings of 95 and higher as well as 5 and lower are in boldfaced red type to indicate potential market extremes. 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.
US Dollar
The USD COT index has turned from 0, which indicates a turn from extreme pessimism. Favor the upside.
Euro
The Euro COT index has also turned from 0, which indicates a turn from extreme pessimism. A turn from extreme pessimism either leads to sideways consolidation before resumption of the downtrend or a reversal to the upside.
British Pound
The Pound COT index has also turned from 0, which indicates a turn from extreme pessimism. A turn from extreme pessimism either leads to sideways consolidation before resumption of the downtrend or a reversal to the upside.
Australian Dollar
The index is at 100, which indicates extreme optimism. While extremes in sentiment can last for weeks, the 100 reading indicates potential for a reversal. It is safer to await a turn from the sentiment extreme before attempting a short however.
New Zealand Dollar
The NZD COT index has turned from 0, which indicates a turn from extreme pessimism. A turn from extreme pessimism either leads to sideways consolidation before resumption of the downtrend or a reversal to the upside. So far, the market has traded sideways.
Japanese Yen
Yen sentiment is at a bearish extreme. As mentioned many times in these pages before, extremes can last for weeks. Favor weakness.
Note-this is a chart of the Yen futures contract, not the USDJPY (the inverse of this chart would look similar to the USDJPY).
Canadian Dollar
The index is no longer at 100 but CAD strength has continued. Not until price shows signs of reversing should one attempt to fade CAD strength.
Note-this is a chart of the CAD futures contract, not the USDCAD (the inverse of this chart would look similar to the USDCAD).
Swiss Franc
The most recent bearish extreme for the CHF was at the end of February. Price has held that low so far, so continue to favor the upside.
Note-this is a chart of the CHF futures contract, not the USDCHF (the inverse of this chart would look similar to the USDCHF).
Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Friday evenings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forum. He is the author of Sentiment in the Forex Market. Follow his intraday market commentary and trades at DailyFX Forex Stream. Send requests to receive his reports via email to jsaettele@dailyfx.com.
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