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Euro Sentiment Turns from Bearish Extreme

Euro Sentiment Turns from Bearish Extreme

2010-03-05 22:01:00
Jamie Saettele, CMT, Sr. Technical Strategist
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 cot1

 
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 cot
 
The index has turned from 100 the week that ended 2/13, which indicates a turn from extreme optimism (see previous instances on the chart when the indicator is blue and changes).  This usuallt leads to a pause or even reveral in the uptrend.  If a reversal is to occur, it usually occurs right away.  Thus far, sideways action indicates just a pause in the uptrend so a long term cautious bullish bias is warranted but respect the potential for additional sideways / corrective action. 
 
 
 
eur cot
The index has turned from 0 after spending 5 weeks at 0.  Looking back, I can not find another instance in which the index remained at 0 for 5 consecutive weeks.  In any case, a turn from 0 indicates a turn from extreme pessimism and typically leads to either a pause or reversal of the downtrend.  
 
 
gbp cot
                   
The index is at 0 for the 4th consecutive week, which indicates extreme pessimism (see previous instances on the chart when the indicator is red).  Beware of a pause or reversal in the downtrend.  
 
 
 
 
aud cot
The AUDUSD sentiment index turned from a pessimism extreme the week that ended 2/20.  Since then, the AUDUSD has gained steadily.  Respect the potential for an outright reversal although from a price perspective, it would take a move above 9330 to signal a reversal.
 

nzd cot
The NZDUSD sentiment picture is similar to that of the EURUSD’s.  The index turned from a pessimism extreme the week that ended 2/20 but price has traded sideways.  This typically results in contunation of the decline.
 
 
jpy cot
 
Yen sentiment turned from a bearish extreme several weeks ago.  Initially bullish for the Yen, the currency has failed to make much progress.  This warns of continued weakess.
 
Note-this is a chart of the Yen futures contract, not the USDJPY (the inverse of this chart would look similar to the USDJPY).  
 

cad cot
 
The index for the CAD turned from 0 the week that ended 2/20.  After trading sideways, the CAD surged higher this week.  As mentioned, turns from extremes in pessimism lead to either pauses in the downtrend or reversals.  In this case, the evidence favors a reversal (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).  
 
 
 
chf cot
The index has turned from 0, which indicates a turn from extreme pessimism.  Turns from extremes lead to either pauses or reversals of the larger trend (in this case, the larger trend is towards CHF weakness).
 
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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