US Dollar Index: Implied net positioning continues to improve from oversold levels. We wrote last week that “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.” That rally is underway and there is no change to the outlook from a sentiment perspective.
EUR: As the dollar index has bottomed, the euro has topped. The sentiment extreme (based on the percentile of net speculative positioning over the last 52 weeks) was registered in late April at 1.3679 and net longs have steadily decreased since then. COT data helps warn of turns at extremes and the trend of positioning moves with the trend of price. Since the trend in positioning has been down since late April, the trend in price may be catching up. However, commercial longs were at the highest levels since mid-June last week. High commercial demand tends to occur near significant bottoms. The euro may be best played from the long side on the crosses.
GBP: Speculative longs declined for the 4th consecutive week. Continue to favor the new trend towards GBP selling, especially against the euro and the US dollar (which both appear bullish individually).
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.
JPY: Speculative positioning continues to inch closer to net long, from previously extreme net short levels. The significant increase in net longs indicates that a longer term trend change may be at hand. The trend is strong towards JPY buying.
CAD: CAD positioning is little changed the last two weeks. Previously, the percentile indicator had been at or near 100 for weeks, which signals a market extreme. With the turn is price following the sentiment extreme, the CAD is may be in the early stages of a significant reversal.
AUD: Speculative longs continue to decrease and speculative shorts continue to increase, which is Aussie bearish. We wrote last week that “fresh selling favors additional losses in the Aussie.” The trend remains down.
-Jamie Saettele, Technical Currency Strategist