Speculative COT positions remain extremely long USD while short EUR and GBP (in absolute and relative terms). Such readings usually accompany market turns.
US Dollar Index: The 52 week index has rolled over from 100. The difference between speculators and commercials was recently at its largest ever. The environment remains ripe for US dollar weakness going forward.
Implications: Bearish
EUR: The index has turned up from 0, indicating potential for a bottom. The composite COT was recently at its lowest ever, which indicates a pessimistic extreme. Also, the percentage of commercials that are long recently turned from a record. All indicators point to EURUSD strength.
Implications: Bullish
GBP: The 52 week COT index is also at 0. This reading indicates a bearish sentiment extreme, which is bullish for the GBP. Recently, over 80.0% of commercials were long, a level not seen since February 2002 when the GBPUSD was near 1.40 (major bottom).
CHF: The 52 week index tuned up from 0 recently, but the composite COT is not at a level that typically precedes CHF lows (USDCHF tops). There is not a strong signal either way.
Implications: Neutral
JPY: The index continues to increase, which is Yen bullish (USDJPY bearish). Bottoms in USDJPY occur when speculators are extremely long the JPY (short USDJPY), which is not yet the case.
CAD: The CAD positioning is similar to the CHF positioning. The COT index is near 0 but composite COT is not extreme when compared to the early USDCAD top. Before the early 2007 top, USDCAD tops were accompanied by composite COT readings of roughly -50000. This is where the composite COT is now. Signals are mxed from a sentiment perspective.
AUD: The AUD index has turned up from 0 and composite COT is the lowest it has ever been. The previous low was in March 2006, (which was an important low). These is the environment that accompany lows. Whether or not a low (short term or not) does form remains to be seen.
Implications: Bullish (but be careful because the trend down is clearly strong)
NZD: The NZD index is at 0. Speculators are net short the largest amount of NZD that we have on record (the record only goes back a few years though). These are bullish signals.
Implications: Bullish (but same as AUD)
Jamie Saettele writes Forex Technicals: The Day Ahead, Monday-Thursday (published at 6 pm EST), Daily Technicals every weekday morning (9 am EST), COT analysis (published Monday mornings), and analysis of currency crosses throughout the week. He is also the author of Sentiment in the Forex Market.
Contact at jsaettele@dailyfx.com