Commitment of Traders Report Points Out Currency Extremes

10/14/2010 12:01 am EST

Focus: FOREX

Jamie Saettele

Senior Technical Strategist, FXCM

The Commitment of Traders (COT) Index is the percentile of the difference between net speculative positioning and net commercial positioning measured over a specific number of weeks (52). A reading close to zero is bearish if the currency in question has reversed from an uptrend and is bullish if the currency has been declining for a significant amount of time. A reading close to 100 is bullish if the currency in question has reversed from a downtrend and is bearish if the currency has been rallying for a significant amount of time.
As you can see from the latest data, several currencies are ripe for a trend change.


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Readings of 95 and higher as well as five 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.

On the charts below:

Blue painted bars indicate that non-commercial (speculative) traders are long and commercials are short

  1. Red painted bars indicate that non-commercial (speculative) traders are short and commercials are long
  2. Non-commercials are on the correct side of the trend until the turn


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Just something to keep in mind as you are entering positions. Use caution when trading currencies near extremes.

By Jamie Saettele of DailyFX.com

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