Latest Release Dated 08/31/06 (10:00 GMT)<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
· EUR/USD Evidence of Thin Pre-Holiday Trading in EUR/USD as Positions Drop to the Lowest Since Jan 2005
· GBP/USD Speculators Banking on a Top in the GBP/USD
· USD/CHF Carry Advantage Keeps Net Positions Long in USD/CHF
· USD/JPY More Gains Expected in USD/JPY
The ratio of longs to shorts in the EUR/USD is -1.01, which is within the extreme +/- 3 range and essentially at parity. The net balance of positions continues to flip back and forth as the currency pair fluctuates within a relatively narrow trading range. The ratio flipped from net long last week to net short Monday afternoon, but we have seen little meaningful price action in the currency pair since then. Looking ahead, with the ratio at parity, the outlook is still uncertain. Furthermore, total positions in the Euro have fallen to the lowest level since January 2005. This represents a 19 percent drop over the past week and was driven primarily by a 31 percent decrease in long positions. Short positions also fell, but by a far more modest 2.7 percent. We expect more squaring going into the long weekend holiday in the <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />US followed by a pickup shortly afterwards.
The ratio of longs to shorts in the GBP/USD is -3.88, which is within the extreme +/- 3 range. Last week we had said that more gains were expected given the very net short nature of the ratio. This was exactly what unfolded as the currency pair tacked on another 100 point gain to total to 600 points over the past five weeks. The ratio hit a high of -5.38 Monday afternoon as long positions shrank to a minimum. It has rebounded since, but the more meaningful increase over the past week has been in short positions which are at a four month high. The GBP/USD was the only currency pair to have seen an increase in total positions as speculators continue to try to pick a top. Short positions are up 26 percent while long positions are down by 23 percent bringing total positions 11 higher. Looking ahead, the ratio still points to more gains with a possible tackle of the 1.9130 August high.
The ratio of longs to shorts in USD/CHF is 2.07, which is within the extreme +/- 3 range. The ratio has remained mostly net long for 10 weeks now as the currency pair continues to remain capped below the 100-day SMA. Total positions have fallen off slightly by 2.4 percent as long positions increase by 18 percent while short positions decrease by 28 percent. The carry advantage of USD/CHF positions continue to keep the bias in favor of long positions. Even though the EUR/USD ratio is near parity, the net long nature of USD/CHF ratio suggestions that dollar weakness is more likely than strength.
The ratio of longs to shorts in USD/JPY is -1.95, which is within the extreme +/- 3 range and virtually at parity. The USD/JPY ratio has remained mostly net short for the past two weeks, coinciding with another 100 point rally in the currency pair. More gains are expected as the ratio grows more net short. Positions remain relatively unchanged, down by only 1.8 percent as long positions fall by 10 percent and short positions rise by 3 percent.
