special reports

US Dollar: High Level of Commercial Interest Indicates Reversal Potential

Monday, 23 July 2007 13:53:36 GMT  |  Jamie Saettele, Technical Currency Strategist

Net non-commercial Implied positioning in USD

US Dollar Index: Implied net positioning continues to decline and is now at -170,752.  Net positioning is inching towards where it was when bottoms were formed in December 2005, June 2006, and November 2004.  Our commercial interest index is at 100, which is extremely bullish.  The last 100 reading was in early December 2006 when the EURUSD topped out at 1.3364 and fell 5 figures (500 pips).  We are expecting the dollar to begin at least a multi week rally in the next few weeks.  

Net non-commercial IMM positioning in EUR

EUR: Although the EURUSD has reached all-time highs, positioning is not at an all-time high.  Since market turns almost always occur at sentiment extremes, additional upside potential remains.  

Net non-commercial IMM positioning in GBP

GBP: Speculative longs are at yet another record this week.  Sentiment is undountedly extreme (to the bullish side), therefore we expect a reversal, especially in GBPUSD (due to the commercial interest index being at 100 for the greenback).

Net non-commercial IMM positioning in CHF

CHF: CHF short positions continue to decrease from extreme levels, signaling that the CHF should strengthen for an extended period.  Sentiment is improving and the outlook for the CHF remains bullish.

Net non-commercial IMM positioning in JPY

JPY:  JPY net positioning is little changed this week.  The chart above shows that the previous two records of extreme bearishness led to reversals.  The psychological backdrop is ripe for a reversal again so be on the lookout for a top in the JPY crosses, especially the GBPJPY and CADJPY.

Net non-commercial IMM positioning in CAD

CAD:  Net positioning regarding the CAD is little changed but positioning remains extreme.  The commercial interest index is at 6 after registering 1 the week before.  These are the lowest levels since the last week in June, first week in July of 2006, when the USDCAD began its rally from 1.1000 to 1.1875.  The CAD is in the process of forming a top (USDCAD bottom). 

Net non-commercial IMM positioning in AUD

AUD:  Net positioning in the Aussie increased from 65,158 to 68,256 last week.  There is little evidence that the Aussie is topping out.  Tops are almost always accompanied by extreme positioning and positioning is not at a bullish extreme (similar to the euro).  There is no reason to believe that the Aussie may form a top this week.

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