At -79,438, the British Pound composite COT is the lowest since July 1999. Cable was in a long term downtrend at that point as well, but the extreme bearish reading led to a nearly 1,400 pip rally before the resumption of the downtrend.
Latest CFTC Release Dated August 12, 2008:
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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 Index: The 52 week index is at 100 after being at 98 the week prior. The difference between speculators and commercials is its largest since late 2005, when the USD formed a top. History does not repeat in exact form but the psychology is perfect for a sizeable countertrend USD decline.
Implications: Bullish, but topping
EUR: The index is at 2 after being at 6 the week prior. Thee composite COT is at-38,536, close to the -45,820 that we saw at the May low. The lowest composite COT has reached was -52,266 at the July 2005 low. A roughly 700 pips rally took place over the next 2 months.
Implications: Bearish but bottoming
GBP: The 52 week COT index is at 0 after having been at 10 the week before. This reading indicates a bearish sentiment extreme and potential for a low to form. Also, at -79,438, composite COT is the lowest since July 1999. Cable was in a long term downtrend at that point as well, but the extreme bearish led to a nearly 1,400 pip rally that ended in October 1999.
CHF: The 13 week index is at 8, after being at 10 last week. Speculators remain extremely short the CHF but unlike the EUR and GBP, CHF positioning is nowhere near historical extremes. This suggests that the CHF may decline relative to other major currencies.
Implications: Bearish
JPY: The index is at 6 after having been at 14 last week. The implications are the same for the JPY as for the CHF. That is, speculators remain bearish but positioning is not close to historical extremes. Expect JPY weakness relative to other major currencies (except for the CHF…which should also be weak).
CAD: The 52 week index is at 0, indicating potential for a CAD bottom of sorts to form. Prior to January 2007, the lowest reading for composite COT had been near -75,000. At 51,488 now, the composite COT is nearing that level.
Implications: Bottoming
AUD: The AUD index is close to 0 also (at 4), which warns of a bearish sentiment extreme. Extremes can last for some time though and the composite COT was as low as -35,000 at the 2006 low.
NZD: The NZD index is at 0 and speculators are net short the largest amount of NZD that we have on record (the record only goes back a few years though). Given the lack of historical positioning data for NZD, there is little confidence in the numbers.
Implications: Neutral