US Dollar Index: Implied net positioning fell slightly and speculative short positions remain the highest since June 2006. With speculators extremely short and commercial hedgers long, conditions are perfect for a bottom and reversal. We are expecting the dollar to begin at least a multi week rally very soon.
EUR: Most of July saw speculators dump euros but net longs did increase slightly in the first week of August trading. Since mid-May, the trend has been towards euro selling. COT analysis is most useful at market extremes as extreme one-sided positioning warns of a reversal. There is little to gather from the COT euro data.
GBP: Speculative longs declined for the 3rd consecutive week. With longs declining from extreme levels, we continue to favor the downside, especially against the US Dollar.
CHF: The trend remains towards CHF buying following the sentiment extreme registered in June. Speculative positioning is close to flipping from short to long as well, which is a bullish CHF signal. The outlook for the CHF remains bullish, especially on the crosses.
JPY: The JPY is in the same position as the CHF. Speculative positioning continues to inch closer to net long, from previously extreme net short levels. However, the change in net positioning is attribiuted to short covering rather than fresh buying. As such, be careful chasing the JPY.
CAD: After selling of the previous week, CAD positioning is little changed. The percentile indicator had been at or near 100 for weeks, which signals a market extreme. The CAD is most likely in the early stages of a significant reversal.
AUD: Net positioning in the Aussie declined again last week. Specualtive short positions increased from 18,481 to 22,252. This fresh selling favors additional losses in the Aussie.
<Written by Jamie Saettele, Technical Currency Strategist>