COT Indicators Turn From Sentiment Extremes

COT positioning has turned from extreme levels.  This is usually indicative of a significant reversal in price.

US Dollar Index: The 52 week index has rolled over from 100.  The difference between speculators and commercials was recently at its largest ever.  The environment remains ripe for US dollar weakness going forward.   

Implications: Bearish

EUR: The index has turned up from 0, indicating potential for a bottom.  The composite COT was recently at its lowest ever, which indicates a pessimistic extreme.  Also, the percentage of commercials that are long recently turned from a record.  All indicators point to EURUSD strength.    

Implications: Bullish

GBP: The 52 week COT index is at 0.  This reading indicates a bearish sentiment extreme, which is bullish for the GBP.  Recently, over 80.0% of commercials were long, a level not seen since February 2002 when the GBPUSD was near 1.40 (major bottom).

Implications: Bullish

CHF: The 52 week index tuned up from 0 recently, but the composite COT is not at a level that typically precedes CHF lows (USDCHF tops).  There is not a strong signal either way.

Implications: Neutral

JPY:  The index continues to increase,  which is Yen bullish (USDJPY bearish).  Bottoms  in USDJPY occur when speculators are extremely long the JPY (short USDJPY), which is not yet the case.

Implications: Bullish

CAD:  The CAD positioning is similar to the CHF positioning.  The COT index is near 0 but composite COT is not extreme when compared to the early USDCAD top.  Before the early 2007 top, USDCAD tops were accompanied by composite COT readings of roughly -50000.  This is where the composite COT is now.  Signals are mxed from a sentiment perspective.

Implications: Neutral

AUD:  The AUD index has turned up from 0 and composite COT is the lowest it has ever been.  The previous low was in March 2006, (which was an important low).  This is the environment that leads to formation of a low. 

Implications: Bullish

NZD:  The NZD index is at 0.  Speculators were recently net short the largest amount of NZD on record (the record only goes back a few years though).  These are bullish signals.

Implications: Bullish

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 jsaettele@dailyfx.com