Latest CFTC Release Dated November 7th, 2006:
Dollar Implied Positioning Remains Bearish
Pound and Aussie Positioning Remains Extreme
US Dollar Index: Implied positioning remained negative for the second 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. With the recent range, it appears that the market is looking for direction. The flip to short implied positioning one week ago favors the downside (in the USD).
EUR: Sentiment continues to improve as speculators increased holdings of euro contracts for the 3rd week in a row. The net positioning is now in the 75th percentile when measured against the last 52 weeks. Readings of 75 and above are considered extremely bullish. The latest increase in euro longs may be the beginning of more bullish price action.
GBP: British Pound Sterling net longs increased significantly (again) this past week. GBP net longs are at 84,280 this week, up from 89,864 the week prior. Net positioning is in the 100th percentile when measured against the last 52 weeks, which is considered extreme. The extreme readings can last for weeks but the risk of a reversal is now high. Additionally, commercials are long just 16,385 contracts. This is the smallest amount since early March 2005 when Cable reversed at 1.9300.
CHF: CHF net speculative positioning declined from -47,069 to -55701, indicating a lack of appetite for CHF. The percentile indicator is now at 8, which is considered extremely bearish (for CHF) and brings to the forefront the possibility of CHF buying returning.
JPY: Net positioning in the JPY is little changed following the previous weeks drastic improvement. Last weeks commentary: 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. This week, positioning decreased slightly to -63,512 (insignificant).
CAD: CAD sentiment remains bearish as net positioning is little changed from -23,678 to -20,342. Net positioning is at the 4th percentile when measured against the last 52 weeks and net positioning has remained negative for 4 weeks in a row now. As such, scope remains for a break higher in the USDCAD.
AUD: Speculators increased longs again this past week and set a new record for longs again. Our percentile indicator has been at 100 for 3 consecutive weeks now. Reversals tend to occur at extreme levels when everyone is on the same side of the market. 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.
