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COT: Euro Positioning Warns of Weakness

-US Dollar and Japanese Yen positioning favors bulls
-Euro and Australian Dollar positioning the most bearish

The COT Index is the percentile of the difference between net speculative positioning and net commercial positioning measured over a specific number of weeks (either 52 or 13).  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

US Dollar Index: The 13 week index has plummeted from 100, indicating that speculators were extremely long US dollars, the speed with which speculators are exiting longs and going short (and commercials covering shorts and going long) favors USD strength. 

Implications: bullish


EUR: The 13 week index is at 100, which indicates a sentiment extreme (optimism extreme in this case).  This is extremely bearish for the euro.

Implications: bearish

British Pound

GBP: The 13 week index is at 25, which is neutral.  There is no sentiment extreme from which to hold a contrarian view.

Implications: neutral

Australian Dollar

AUD: The 13 week index is at 100.  Tops occur when the index is at or close to 100, so the probability of a top forming in the next few weeks (or that one is already in place) is high.

Implications: bearish

New Zealand Dollar

NZD:  The 13 week index has increased from 0 and is at 83.  The speed with which speculators are exiting shorts and going long (and commercials exiting longs and going short) suggests NZD weakness. 

Implications: neutral

Japanese Yen

JPY:  The 13 week index is at 0.  This indicates that commercials are the longest they have been in 13 weeks and speculators the shortest they have been in 13 weeks.  This is bullish for the Yen.

Implications: bullish (bearish USDJPY)

Canadian Dollar

CAD:  The 13 week index has increased from 0 and is at 17.  This is bullish for CAD individually, but beware of shorting USDCAD (because USD is bullish as well).  A cross that one could play CAD strength with is AUDCAD (short).

Implications: bullish

Swiss Franc

CHF:  The 13 week index has increased significantly and is now at 83.  Such frantic CHF buying by speculators and CHF selling by commercials is bearish for the CHF (bullish USDCHF).

Implications: bearish (bullish USDCHF)

Jamie Saettele publishes Daily Technicals every weekday morning (930 am EST), COT analysis (published Monday mornings), technical analysis of currency crosses throughout the week (EUR on Tuesday, JPY on Wednesday, GBP on Thursday, AUD on Friday), and the DFX Trend Index every day after the NY close.  He is also the author of Sentiment in the Forex Market.

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