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The COT Index is the percentile of the difference between net speculative positioning and net commercial positioning measured over the last 52 weeks. 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. The last 4 weeks of the COT Index are shown because it is just as important to know where the index is coming from. 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 Index: The indexes have turned from near 100 recently, and are pointed down, indicating that the trend is towards lower prices. We’ll not look for a bottom until at least the 13 week index is at 0.
Implications: Bearish
EUR: The 52 week index has turned from 0 (early June) but the 13 week index has accelerated so fast that it is now at 100 (after being near 0 in June). In other words, speculators have piled on Euro longs quickly, making it unlikely that the Euro is headed much higher from current levels. At least a setback should take place.
Implications: Neutral
GBP: The 52 and 13 week indexes are at 47 and 92. The analysis for the GBP is the same as that for the Euro; the short term index has increased significantly and the 52 week index is still relatively low. Expect a pullback.
Implications: Neutral
CHF: The 52 and 13 week readings are at 94 and 92. The indexes have been extremely volatile lately. A bearish extreme reading from the 13 week index in May turned us CHF bullish (USDCHF bearish) but the pair is at a bullish extreme now. Expect weakness (USDCHF strength).
Implications: Bearish
JPY: The 52 and 13 week COT indexes are at 80 and 83. Both indexes have jumped from relatively levels in recent weeks. Expect Yen weakness to continue until the indexes are near 0.
Implications: Neutral
CAD: The 25 and 50 week COT indexes are at 24 and 42 after being near 0 for weeks. Sentiment has turned from a sentiment extreme, indicating that a turn towards CAD strength is probable.
Implications: Bullish
AUD: The 52 and 13 week COT indexes are at 90 and 68, up significantly over the past week. We wrote then to “expect strength to continue until the indexes are near 100.” The indexes are nearing 100 now. Watch for a reversal in the next 1 to 3 weeks.
Implications: Bullish
NZD: The 52 and 13 week COT indexes jumped this week. The 13 week index has soared to 75 from just above 0. With speculators adding to longs so aggressively, expect weakness.
