Latest CFTC Release Dated July 11th, 2006:
Implied USD Index Positioning Favors USD Strength
Speculators Cut CAD Longs Significantly
US Dollar Index: USD index implied positioning continues to come off of the extremes that were reached in early June. This trend has been in place for 5 weeks now, which suggests that a dollar low is in place. If the dollar continues to pick up steam, then the public will catch on and eventually flip to dollar long. At this point, we will watch for extreme long positioning to warn of a potential turn back to dollar weakness.
EUR: Specs increased longs for the third week in a row to record the third highest total of speculative longs ever. The difference between large speculators and commercials is considered extreme now with the percentile (of the absolute value of the difference between specs and commercials) at 96. With large speculators all on one side and commercials extremely net short of euros the probability of a long term turn to the downside is increased.
GBP: Continuing with the theme of a turn towards dollar strength it appears now that the extreme positioning back in late May (when speculators were net long GBP the secong largest amount ever at 39,697?only less than the amount back in March 2005), was the turning point. A month later, specs are long just 13,749. Although speculators are still long GBP, the trend is obviously towards dumping Pounds and the public remains correct for quite some time. The speculators are wrong at big turning points. Thus, it appears that the turning point is behind us and that the trend is towards GBP weakness rather than strength.
CHF: CHF traders have added to their net short position but are short a small amount. Specs are short just 7,259 and the exteme levels historically have been in the 40,000-60,000 range. As a result, expectations are for CHF weakness (as specs are short) untl the market is one sided.
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JPY: The Yen story is the same as that of CHF. Speculators positioning remained virtually the same. Specs are still net short, but not an inordinate amount. A turning point becomes more likely once commercials are extremely long and/or speculators are extremely short of the currency.
CAD: CAD cut CAD longs a huge amount last week after the USD/CAD breakout. Positioning the prior week was extreme with almost 7 CAD longs for every short (specs). That ratio is now down to 1.6. This represents a shift in market psychology and as such an increased probability that the path is towards CAD weakness (USD/CAD strength).
AUD: Speculators added to long positions and are now long 16,936. Similarly, commercials added to short positions and are now net short 25,848. Hostorically extreme levels are around 30,000 for speculators and 50,000 for commercials. <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Positioing seems to be headed in this direction which would imply that a top is forming in AUD.
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