The difference between speculative and commercial positioning is the largest it has ever been for the US dollar, Euro, and British Pound. Such universal bullish dollar sentiment among speculators increases the risk of a sharp pullback (dollar).
US Dollar Index: The 52 week index remains at 100. The difference between speculators and commercials is its largest ever, just above the November 2005 level. History does not repeat in exact form but the psychology is perfect for a sizeable countertrend USD decline.
Implications: topping?
EUR: The index is at 0, indicating exteme pessimism. The composite COT is at -82,117, below the former all-time low from July 2005 (temporary Euro low). At that time, a roughly 700 pip rally took place over the next 2 months. The percentage of commercials that are long is at its all-time high now at 68.14%. This is above the July 2005 level of 61.4%.
Implications: bottoming?
GBP: The 52 week COT index remains at 0. This reading indicates a bearish sentiment extreme and potential for a low to form. Also, at -108,348, composite COT is the lowest ever. The previous low was -92,119 in July 1999 (see arrow). Cable was in a longer term downtrend at that point but rallied nearly 1,400 pips in less than 3 months following the extreme July 1999 reading. The difference between then and now is that the percentage of commercials that we were long was at 90% then. Now, just 77% commercials are long.
Implications: bottoming?
CHF: The 13 week remains at 2, after being at 6 last week. Speculators are extremely short the CHF when compared with the last 52 weeks but unlike the EUR and GBP, CHF composite COT is nowhere near historical extremes. Similarly, the percentage of commercials that are long is at 64.2%. Most bottoms in CHF (top in USDCHF) occur when 90% of commercials are long (or at least close to 90%).
Implications: neutral
JPY: The index is at 22 after having been at 8 last week. In 2007, positoning was much more extreme, but we would expect it to be since 124.13 was probably the end cycle wave 4. Still commercial buying is just above 50%. Significant lows (USDJPY top in this case) usually see higher commercial buying.
Implications: neutral
CAD: The 52 week index is at 4 after being at 6 last week. Before the 2007 low (USDCAD top), Cad lows tended to occur when the composite COT was in the -60,000 range. This is where composite COT was 2 weeks ago. Also, close to 70% of commercials long tended to singal CAD lows. The reading 2 weeks ago was 68.3%. In other words, look for a CAD low (USDCAD top) soon.
Implications: bottoming
AUD: The AUD index is at 0, but a closer look into the COT numbers reveals that the decline is probably not finished. For one, composte COT is still positive at 2,475. A deeper negative reading should accompany an important low. Also, only 49% of commercials are long. Previous important lows occurred when 65% and 72% of commercials were long.
Implications: bearish
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). Given the lack of historical positioning data for NZD, there is little confidence in the numbers. Commercials are ‘longer’ than near the 2006 low. These are bullish signals but the lack of historical data leaves us with little confidence.
Implications: neutral
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 [email protected]
