The last COT Report for EURO FX showed that there is high open interest and extreme levels of Commercials and Non-Commercials.

Weekly Chart of EURUSD with COT Analysis

3 observations  can be made from the chart.

1. Extreme Bullish Sentiments of the Commercials

The recent levels of the Commercials is on a record Bullishness level, unseen for the past 7 years.

2. Extreme Bearish Sentiments of the Non Commercials

Likewise, the recent levels of the Non-Commercials is on a record Bearish level, unseen for the past 7 years.

3. Rising Total Open Interest

The rising total open interest means that there were new orders for EURO-FX, thus implying increased market interest on this futures contracts.

What does all this mean?

The high open interest with extreme levels of sentiments usually precedes a possible Big move or a start of a trend reversal. As seen from the chart above, it could be a mean possible halt of the current down trend move, which could mean that EURUSD may have a bullish reversal and moving uptrend again.

For the past 2 weeks or so, we are seeing the US Dollar Index moving in a trading range, which also defines its current support and resistance level.

The COT Report released last Fri points to a slightly lower Total Open Interest and a slight unwinding of the shorts of the Net Commercial Sentiments.

The trading range seems to be a consolidation after the recent rally after the bull flag in Jan 2010.

Lastly, it is noted that the upward trend of USDX seems to be strong as it is yet to be violated.

From Last Friday’s COT Report, the Commercial Net Position has moved down to the level near Jan 2010, a net short level which is unseen for the past 5 years.

In addition, the Total Open Interest remains on a high level. Together, these indicate that the current uptrend for USDX remains strong.

Yesterday, we saw big moves for all Majors Currencies. Looking at yesterday’s post on USDCHF throwback in day chart; hourly chart expansion gains, there seems to be a correlation of the Dollar Index, commonly known as USDX, with all cross-pairs of the USD.

Let’s have a look at the COT Report posted last Friday, 15 Jan, to see if there is any signs that the big players have left trails.

It can be seen that there was a support for USDX at 74.12, and a Big falling wedge pattern formed since Mar 09 till now.
The breakout from the wedge following with the breakout to above 50 day moving average,  suggest that a bullish trend reversal is intact, thus, USDX is likely to trend upwards.

From the COT Indicators, our interest is to look at the Net Position of the Commercial Traders and the Total Open Interest. Commercial Trader are the Big Boys and the Smart Money as discussed in my previous post and thus the Total Open Interest will also reflect largely on their open positions.  We see that the Net Position of the Commercials were on the extreme short position seen at the previous week, and they were unwinding their shorts position slowly as from last week. It is the similar pattern last seen in 3rd quarter of 2008, and causing a bull rally on the USDX.

The USDX is an index of Major Currencies and  therefore the chart pattern seen on USDX is similar with those pairs with USD as its base currency, eg. USD/CHF, USD/JPY and USD/CAD.

So which will move first? The USDX or the cross pairs in the spot market? I might find an  answer to this when somebody can tell me which come first: ‘The chicken or the egg’?

At the end of day, we should be traders first, investor second, and ride on the trend as long as possible.

Commitments of Traders (COT) Reportis a market report posted on Friday by U.S. Commodity Futures Trading Commission (CFTC) on the Tuesday’s open interest of Traders who are obliged by law to report on their open positions.  As sample of it as below.

Commitments of Traders Report

Our interest is on Commercial Positions and the total Open Interest.  The commercial traders are usually the Smart Money and the Market Movers and the Open Interest gives an idea of their current power of influence in this market.

Swiss Franc Futures COT Report

With the weekly COT data above collected over time,  it would be possible to know the Big Boy’s sentiments by translating the data into a graphical form.  The chart below shows a decline in both the Open Interest (Green Line) and the Commercial Sentiments (Red Line), along with the price found topping and forming Hanging Man candlesticks, which are bearish indications of possible price reversal.  (see red highlighted rectangle)

And by tracking the Commercial Sentiments and Open Interest, we can know the Big Boy’s sentiments and even earn a fortune! As from the chart below, a possible 1800 pips could be profited over a span of 2 months.

Swiss Franc Spot Price with COT Chart

Next week, we will see an example of COT Chart for Gold and the traders found under the COT report.