The COT Index is the percentile of the difference between net speculative positioning and net commercial positioning measured over a specific number of weeks (either 52 or 13). A reading close to 0 suggests that a bottom is forming and a reading close to 100 suggests that a top is forming. The readings are for the actual currency, not the currency pair. For example, a reading of 100 on the Canadian Dollar suggests that the Canadian Dollar is close to a top (USDCAD close to a bottom).
Readings of 95 and higher as well as 5 and lower are in boldfaced red type to indicate potential market extremes. For example, an increasing index is bullish until the index is extreme (near 100), at which time the risk of a reversal or pause in the trend increases.
US Dollar
US Dollar Index: Speculators are long but not extremely long (commercials are short, but not extremely short). This is bullish.
Implications: bullish
Euro
EUR: The 13 week index has rolled over from 100, which indicates a sentiment extreme (optimism extreme in this case). This is extremely bearish for the euro.
Implications: bearish
British Pound
GBP: The 13 week index is at 75 and has not been extreme recently, which is neutral. There is no sentiment extreme from which to hold a contrarian view.
Implications: neutral
Australian Dollar
AUD: The 13 week index has rolled over from 100. Tops occur when the index is at or close to 100, so the probability that a top is in place is high.
Implications: bearish
New Zealand Dollar
NZD: The 13 week index has rolled over from 100. Tops occur when the index is at or close to 100, so the probability that top is in place is high.
Implications: bearish
Japanese Yen
JPY: The 13 week index is at 0. This indicates that commercials were the longest they had been in 13 weeks and speculators the shortest they had been in 13 weeks. This is bullish for the Yen.
Implications: bullish (bearish USDJPY)
Canadian Dollar
CAD: The 13 week index is at 100, which indicates a sentiment extreme. Tops (in the CAD here) occur when the index is at or close to 100, so expect the CAD to top (USDCAD bottom).
Implications: bearish (USDCAD bullish)
Swiss Franc
CHF: The 13 week index is at 0. A turn up from 0 would be bullish. Until that time, a bearish sentiment extreme can remain in place.
Implications: bearish (bullish USDCHF)
Jamie Saettele publishes Daily Technicals every weekday morning (930 am EST), COT analysis (published Monday mornings), technical analysis of currency crosses throughout the week (EUR on Tuesday, JPY on Wednesday, GBP on Thursday, AUD on Friday), and the DFX Trend Index every day after the NY close. He is also the author of Sentiment in the Forex Market.
Contact at jsaettele@dailyfx.com
