Ralph Shell @ 1:18 PM, Monday July 19 2010
It is no secret to forex traders that the USD's reputation and value has been depreciating for over a month. Each Friday, the COT gives us a summary of the activity of the various trading groups, with the cut off date for the report, the close of trading on Tuesday. The futures and options combined is the broadest measurement of trading activity because it includes the delta adjusted option positions.
Each week we examine this report, analyzing and summarizing the speculative positions. If the spec is short the euro, the flip side is that he is long the dollar. This past week specs were net longs in the DI, and were short the euro and the pound. A summary of their positions was a net USD long of 101,608 contracts. Specs favored the long side of the yen, Swiss Franc, C$, NZ$ and the A$ which by default left them short 123,148 contracts, or a net USD short of 21,540 contracts. In essence, they flipped to a aggregate net short position. Contrast this to data from a month ago, 06 15 2010 data, when the spec was long 141,002 contracts. Is it any wonder that, with this persistent selling that the USD is lower.
The weekend featured dollop's of bear news for most of the major currencies. US home builders became increasingly pessimistic as their index hit a 15 month low, no surprise here. US equities after Fridays rout are showing little recuperative power. Europe, though proud of the euro's performance is worried that the stronger pound will hurt the economic recovery, especially amongst the southern members of the community. Hungary felt the latest IMF offer, calling for the reduction is public sector expenditures was too restrictive, and talks have now broken up. This no doubt makes some European and Swiss bankers nervous.
In Britain, there are reports that PM Cameron intends to raid dormant UK bank accounts to fund community projects. With projects like the "Big Society Bank" how long will it be before the market will David Cameron's conservative identification. What right does a government have to raid bank accounts?
As we have consistently observed, speculators in the pound have had a larger percentage of the total market than the euro shorts. We have just had a 1200 pip rally, and they are still short, so it looks like some of the specs are willing to take this short to the grave yard when they go. Recently the pound has tailed off from the recent high of 1.5469. Against the euro the pound is showing signs that the gains versus the euro are being given back. A trend line, going back to the middle of March has been broken as the euro has bounced back from under .81 to over .85. The MACD has also given signals the trend of the euro versus the pound has changed. We seem a little overextended at the current .8507 level but would like to try the long side should we get a pull back to the .8455 area.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.