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British Pound Speculative Short Positions Increase Significantly

Speculative US dollar long positions and speculative short positions for all other currencies have increased significantly.  Action like this typically precedes a countertrend move (in this case, a USD decline).

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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 13 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.  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 index is at 82 after being at 100 the week prior (registering a bullish extreme).  Interestingly, the bullish extreme that was registered as the USD recovery was in its infancy, which is rare.   Extremes can last for weeks at a time; in other words, the index being at 0 does not necessarily mean that the USD will reverse.  Still, with so many speculative USD bulls, beware of sharp dollar declines. 

Implications: Bullish, but topping?

 

 

EUR: The index is at 17 after being at 8 last week.  The trend is down until a bearish extreme is registered.  Even then, a bearish extreme can last for weeks. 

Implications: Bearish

 

 

GBP: The index for the British Pound is at 25 a week after being at 83.  This is a large move in a short amount of time.  In other words, speculators piled have piled on shorts.  Expect weakness until a bearish extreme is reached. 

Implications: Bearish

 

 

CHF: The 13 week index is at 8, after being at 33 last week.  Speculators are extremely short the CHF so watch out for sharp USD rallies. 

Implications: Neutral

 

 

JPY:  The index is at 8 and has steadily decreased for weeks now.  A bearish extreme should form over the next several weeks and give way to the next leg of Yen strength.   

Implications: Neutral

 

 

CAD:  We wrote last week that we’ll look for a CAD bottom (USDCAD top) when the index reaches 0.  The index has reached 0, which warns of a CAD bearish extreme.                        

Implications: Bottoming

 

 

AUD:  The AUD index is at 0, which also warns of a bearish sentiment extreme.  As mentioned with in analysis of the other pairs, extremes can last for weeks.         

Implications: Bearish

 

 

NZD:  The NZD index is at 0 and speculators are net short the NZDUSD for the first time since July 2006.  The implications are the same for the NZDUSD as for the AUD.   

Implications: Bearish