Latest CFTC Release Dated October 17th, 2006:
CHF, JPY, and CAD Sentiment Is Extremely Pessimistic
US Dollar Index: Implied positioning continues to increase and is now at 104,698 the most positive that positioning has been since December 2005. We look at positioning in relation to where its 4 week average has been over the past year. The 4 week average is at the 90th percentile this week which is considered extremely dollar bullish.
EUR: Sentiment continues to deteriorate. Speculative positioning is below the 50th percentile (when measured against the last 52 weeks) for the first time since December 2005. Euro positioning has been decreasing since the pair topped out in June. The combination of our speculative index slipping below 50 after decreasing from extremely bullish levels (above 75) favors weakness.
GBP: There is also evidence that Cable is topping out. Speculative positioning has been extreme (to the long side) since 8/1. Traders did add to longs this past week but the 4 week average of positioning continues to decrease. Our index is at 78 after topping out at 100 in eary September. A cross below 75 would be the first such instance since April 2005, which preceded a 2,000 pip decline.
CHF: CHF speculative positioning is extremely bearish (for CHF) at -67,208 contracts. Our indicator is at 0 which indicates extreme pessismism regarding CHF. While pessimism can remain extreme for weeks at a time, the risk of a pullback towards CHF strength is high.
JPY: The extreme dynamic regarding CHF is illustrated perfectly with the JPY. Speculative positioning has remained below the 25th percentile since 8/22 when the USDJPY was at 117.30. The JPY has since fallen to nearly 120 against the USD. While there is a risk of reversal due to the extreme positoning positioning can remain extreme. For example, speculative positioning remained below the 25th percentile from February 2005 to December 2005 and the USDJPY went from 105 to 121 during that span.
CAD: CAD sentiment is bearish as well. Trades flipped to net short CAD and our index is at 0. The analysis is the same as that for the CHF and the JPY. That is, there is the risk of a reversal towards CAD strength but the extremely bearish sentiment makes buying CAD a risky proposition.
AUD: Speculators increased longs again this past week. Our index increased from 84 to 92, which is bullish for AUD. A decline below 75 would favor a longer term reversal lower but for now positioning remains bullish.
