Latest CFTC Release Dated November 21st, 2006:
Dollar Implied Positioning Improves but Remains Bearish
CAD Positioning Deteriorates
US Dollar Index: Implied positioning remained negative for the fourth consecutive week, which is dollar bearish. As the chart above shows, price tends to follow positioning and vice versa. Turning points occur at extreme levels of bullishness or bearishness. While implied positioning is negative, it is not yet extreme. As such, it is possible that additional bearish potential remains.
EUR: Sentiment is little changed this week. Speculative net positioning increased slightly from 60,475 last week to 65,306 this week. We index the data to compare sepcualtive positioning on a relative basis by calculating the percentile that speculative positioning falls into when compared to the last 52 weeks. Sentiment remains bullish as this weeks value is at 67. Readings above 50 are considered bullish.
GBP: British Pound Sterling net longs increased this past week and remains extreme. GBP net longs are at 69,089 this week, up from 62,252 the week prior. Net positioning is in the 98th percentile when measured against the last 52 weeks, which is considered extreme. We mentioned last week that the extreme readings can last for weeks but the risk of a reversal is now high. The risk of reversal remains high with Cable near its 2004 high.
CHF: CHF net speculative positioning increased from -42,545 to -38,797 and the percentile indicator is now at 29 after being at 0 just a few weeks ago. The last few weeks, we mentioned that while the speculative community remains net short of CHF, it is possible that the currency is bottoming out (USDCHF topping) as speculators may have started to cover CHF shorts. This seems to be the case as the USDCHF has declined significantly.
JPY: Net positioning in the JPY fell again. Speculative positioning decreased from -55,012 contracts to -80,421 contracts. The percentile indicator is at 16 which indicates extreme bearishness towards the JPY. As such, the JPY may continue to decline relative to other currencies, but the risk of a reversal to JPY strength increases at the current juncture.
CAD: CAD sentiment continues to deteriorate as net positioning decreased from -47,375 to -58,893. Our index is at 0 and indicates that the market is extremely bearish on CAD. USDCAD bulls need to be careful here though as extreme readings can lead to reversals.
AUD: Net positioning is little changed but sentiment remains extremely bullish. In fact, positioning has remained extreme (bullish) for 7 weeks now. The recent extreme readings in AUD futures gives scope to a decline in the currency or pause in the uptrend. Notice that a major reversal occurred back in March of 2005 when net speculative positioning was at extreme levels (as now).
