US Dollar implied positioning increased and is positive for the time since April 11th. We have continued to suggest that a bottom is in place for the index at 84.07 due to the extreme short positioning in May. The trend has been towards dollar buying since, as evidenced by implied positioning increasing from less than -200,000 to positive. The flip to positive reinforces our dollar bullish interpretation of the COT data.
US Dollar Index: Implied positioning increased and is positive for the time since April 11th. We have continued to suggest that a bottom is in place for the index at 84.07 due to the extreme short positioning in May. The trend has been towards dollar buying since, as evidenced by implied positioning increasing from less than -200,000 to positive. The flip to positive reinforces our dollar bullish interpretation of the COT data.
EUR: Speculators continue to cut longs. The topping scenario that we have focused on over the last few months, due to the build up in long speculative positions and low commercial interest in the currency, seems to be playing out. Speculative net longs topped out at 92,108 in early August. Traders hold just 51,114 contracts now. More telling is the fact that commercials are short just 15,429, the smallest amount since January 2003. Commercials tend to be correct at market turns holding large amounts of the commodity at the bottom and small amounts of the commodity at the top.
GBP: There is also evidence that Cable is topping out. Speculative positioning has been extreme (to the long side) since 8/1. Commercials hold the smallest number of contracts since March 2005 when GBPUSD topped out at 1.9323. The COT report indicates that risk is to the downside.
CHF: CHF speculators increased short positions again this week. This fits with the philosophy that speculators are correct for much of the trend (they are wrong at market turns). The data favors a contuation of dollar strength (in the broader sense?.there are of course corrections along the way).
JPY: Yen speculators remain extremely short. We warned of JPY strength last week when commercials held the largest amount amount of Yen that they had ever held. The evidence points to a topping out in USDJPY in coming weeks and a reversal of trend. Of course, positioning can remain extreme for a while so always adhere to strict risk parameters.
CAD: Specs remained long CAD, but cut long positions significantly. The trend has been towards CAD selling as speculative positioning has decreased from 30,605 contracts to 855 contracts since 8/29. Positioning favors a turn higher.
AUD: Speculators added to long positions a week after liquidating nearly half of their contracts. We have focused on the extreme long positioning and the lack of commercial demand in recent weeks, which favors a reversal to the downside. Nothing has changed. COT positioning indicates that AUDUSD may be in the early stages of a major move lower.
