Latest CFTC Release Dated October 24th, 2006:
Aussie Longs at Record High
US Dollar Index: Implied positioning is little changed at 101,006. COT data has favored bulls since 10/3, when implied positioning flipped to positive. However, price has not followed. Notice that previous instances of positive implied positioning led to dollar rallies.
EUR: Sentiment seems to have stablized. Speculative positioning remains below the 50th percentile (when measured against the last 52 weeks) but net positioning did not decrease this week. With sentiment having deteriorated so much since May, there is plenty of room for improvement. However, the trend does remain towards euro selling (as evidenced by the chart of net positioning above).
GBP: British Pound Sterling net longs increased this week, although not materially. GBP sentiment has held up much better than euro sentiment as our index is at 78 for GBP (compared to 35 for euro?.the index is the percentile that net positioning is in when compared to the last 52 weeks?.above 50 is bullish and below 50 is bearish).
CHF: CHF speculative positioning is extremely bearish (for CHF) at -70,223 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. We mentioned last week that there is the risk of reversal due to the extreme positoning. The JPY strengthened across the board last week and strength may very well continue in order to correct the extremely bearish positioning that remains.
CAD: CAD sentiment is bearish as well. Traders flipped to net short CAD two weeks ago and our index is at 2. 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 and our index is at 100 indicating extreme bullishness. Reversals tend to occur at extreme levels. The likelihood of a reversal towards Aussie weakness is bolstered by the fact that commercials own a very small amount of Aussie contracts. Commercials tend to be correct at market turns holding small amounts at tops and large amounts at bottoms.
