Latest CFTC Release Dated October 31st, 2006:
Dollar Implied Positioning Deteriorates
US Dollar Index: How things can change in one week. Implied positioning is now negative, 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. With the recent range, it appears that the market is looking for direction. The flip to short implied positioning favors the downside (in the USD).
EUR: Sentiment has improved considerably as net positionng increased from 27,151 to 60,048. The net positioning is now in the 65th percentile when measured against the last 52 weeks. Readings above 50 are considered bullish. Downside risk remains as the larger trend has been towards deteriorating euro positioning. However, price has held up well during the bout of euro selling (since May) and the latest increase in euro longs may be the beginning of more bullish price action.
GBP: British Pound Sterling net longs increased significantly this past week. GBP net longs are at 59,864 this week, up from 37,165 the week prior. Net positioning is in the 98th percentile when measured against the last 52 weeks, which is considered extreme. The extreme readings can last for quite some time but the risk of a reversal is now high. Additionally, commercials are long just 16,971 contracts. This is the smallest amount since early March 2005 when Cable reversed at 1.9300.
CHF: CHF net speculative positioning also improved as net positioning increased from -70,223 to -47,069. The percentile indicator is now at 16, which is still considered extremely bearish (for CHF). A move above 25 would improve the odds for a return to CHF strength.
JPY: Net positioning regarding the JPY saw a drastic improvement. Speculators positioning increased from -137,290 to -59,600 for a change of 77,690. Net positioning is now in the 39th percentile when measured against the last 52 weeks. The move above the 25th percetile may signal a larger turn towards JPY strength.
CAD: CAD sentiment remains bearish as net positioning deceased from -14,233 to -23,678. Net positioning is at the 2nd percentile and net positioning has remained negative for 3 weeks in a row. As such, scope remains for a break higher in the USDCAD.
AUD: Speculators increased longs again this past week and our index remains 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. Speculators set a new record for Aussie longs.
