Latest CFTC Release Dated Septmber 12th, 2006:
Positioning Indicates a Demand for Dollars
US Dollar Index: Implied positioning remained net short but increased from -115,716 contracts to -10,921 contracts. This sharp increase in dollar buying is an indication of a trend change. Implied short positions topped out on May 30th, when the USD index bottomed out just below 84.00. This means that the trend has been towards USD buying suggesting that a low may be in place (Mays low). Additionally, commercial buying was the most it had been in 52 weeks at the beginning of June. Commercials are often correct at market turns.
EUR: Speculators cut longs for the fifth week in a row. The topping scenario that we have focused on over the last few months, due to the build up in long speculative positions and low commercial interest in the currency, seems to be playing out. Speculative longs had remained extreme until this week and longs have decreased from 101,133 contracts to 79,626 contracts since 8/8. The chart above indicates that the euro may have topped out as traders liquidate long euro positions.
GBP: There is also evidence that there is a top in Cable. Since, 8/15 speculative longs have decreased from 74,152 contracts to 50,259 contracts, This is a decreased from the 100th percentile to the 86th percentile when measured against the last 52 weeks. Remember, extreme positioning often marks turning points in the market. The interpretation is the same as it is for the euro. That is, the former extreme positioning favors a topping out in GBP.
CHF: CHF speculators increased short positions nearly two-fold this week. This fits with the philosophy that speculators are correct for much of the trend (they are wrong at market turns). The data favors a contuation of dollar strength (in the broader sense?.there are of course corrections along the way).
JPY: Yen speculators are extremely short. In fact, traders are short the most they have ever been. In addition, commercials hold the largest amount amount of Yen that they have ever held. The evidence points to a topping out in USDJPY in coming weeks and a major reversal of trend. Of course, positioning can remain extreme for a while, so a reversal could occur anytime in the next month or so.
CAD: Specs remained long CAD, but cut long positions by almost half. This signals that CAD is in the early stages of weakness as speculators have cut long CAD positions a large amount.
AUD: Speculators also cut long AUD positions by roughly half. We have focused on the extreme long positioning and the lack of commercial demand in recent weeks, which favors a reversal to the downside. Nothing has changed. COT positioning indicates that AUDUSD may be in the early stages of a major move lower.
