With Japan’s fiscal year end now passed, we can begin to focus with more confidence on the COT index for the Japanese yen.   However, as always we need to bear in mind that the COT index must be viewed as a sentiment indicator and not a timing indicator and cannot always be correlated with the spot market.   All the index is telling us at present is that the commercials are continuing to build long futures positions in the Japanese Yen and that this will translate into Yen strength at some point in the spot forex market.

All the latest fundamental news is now available on the economic calendar, and if you are looking for the latest live price for the Japanese yen against a variety of currency pairs, then just follow the appropriate link. Finally, if you are looking for a good ECN broker I have provided some details on what to look for when choosing your broker.

The COT data for this week shows an increase in the cot index which is now starting to climb away from the extreme lows of the last few weeks, suggesting that we are now seeing the long awaited reversal in the Australian dollar, a move which is reflected in the spot market against many other currencies, of which the US dollar is typical. A look at the weekly chart for the Aussie dollar, reveals a double bottom over the last 6 months, with a breakout from this trading range now imminent, and with a wide spread up bar, the AUD/USD pair are poised to break through the resistance level at 0.7090.   However as always we need to bear in mind that the COT index is a direction indicator only, and not a timing indicator, and should only be used to reinforce or support our view of the spot market.

All the latest fundamental news is now available on the economic calendar, and if you are looking for the latest live price for the AUD/USD currency pair, then just follow the appropriate link. Finally, if you are looking for a good ECN broker I have provided some details on what to look for when choosing your broker.

No real change since last week other than commercials still selling into a rising market, although the volume of contracts has substantially reduced in the futures market since this time last year.  As an example this time last year  the total number of positions was 141k whereas last week the total number was close to 95k and with commercial short positions having fallen from 100k last year to 64.5k this year.

In the spot market the trend is still bullish longer term although we are currently seeing some sideways consolidation in the market at present due to the economic climate and present round of quantitative easing and financial bail outs.   The perceived wisdom of the stock markets is that the rally of the past few weeks is merely a temporary bull rise which, in due course, is likely to classified as a dead cat bounce.  This in turn could lead investors back to gold and silver as safe havens in uncertain times.

Everything I say may appear slightly contrarian when viewed using the COT index as an indicator but the British Pound is a good example at present which I hope will make the point with a little explanation.  At present the Commercial futures holders are net long and have been for some time even whilst the pound has been falling heavily in the spot market which may seem odd at first glance.  However, if we stop and think for a moment about the nature of the commercial holders, these are institutions with very deep pockets who are taking long term view of the market and are therefore building their positions by buying at what they consider to be a low price with a view to selling the contracts in the 12 to 18 months once the pound has recovered.

All of the above merely highlights the timeframes one is dealing with when viewing the COT index; it is not a timing indicator as such but much more a sentiment and direction indicator for the longer term.  The extremes of the chart, whether zero or 100 are the points at which the sentiment shifts in the commercial holders and at which point we may expect to see a change in price direction in the spot market in the following period.

The futures’ positions of the commercial players remains largely unchanged since last week when we saw the oil price spike up to $55 dollars a barrel and despite today’s fall in the spot market my view remains unchanged and has been reinforced by the monthly WTI crude oil chart which shows a long legged doji followed by a hammer – two classic reversal signals which suggest that we are now at the bottom of a long waterfall of prices.

As with silver the futures’ positions of the Commercials shows an expectation of further increases in the price of gold, a position which is likely to remain unchanged until we reach an extreme on the COT index approaching anywhere close to 100, assuming the current trend continues to build as we have seen over the past 20 weeks.   Again I must emphasise that this index is not a timing tool but merely reflects the sentiment of some of the biggest market players and you trade against them at your peril.

The Canadian Dollar continues to remain a long term buy despite last week’s temporary reduction in both long and short positions but still leaving the Commercials with a net long view of this currency.   A look at the monthly usd to cad candle charts would tend to support this bullish view of the Canadian dollar where this month’s candle will be a very long legged doji preceded by a series of tweezer tops.  Again I have to stress that the COT index is a long term sentiment indicator and wont always necessarily support the spot market picture.

The most meaningful aspect of the COT index for the Japanese Yen was the shift 3 weeks ago by commercial contract holders from being net short at the point to the current situation where they are net long by some significant margin.   However, as this has happened towards the end of Japan’s fiscal year (ie 31st March) we should really wait a few more weeks to see if this sentiment is likely to continue.  In the spot market there is an increasing struggle at the moment with the 98.50 level providing strong resistance to any move higher by the dollar.

The Australian Dollar Cot data is very interesting this week as there appears to have been a major transfer of future contracts by the commercial holders who are now net short.  This is not unprecedented and happened at the end of last year.  This does not necessarily signal a long term change in sentiment, merely a response to current market conditions and does not alter my bullish long term of the Aussie Dollar, confirmed to some extent by the weekly chart which is now showing a double bottom. However, in the short term we may see prices continue to fall this week following the shooting star of last week.

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As with the gold COT index, so the same picture appears with silver, with the bullish momentum now in place, and whilst we have seen a pullback in the last two weeks which is reflected in the spot silver price chart, unless we see a fall back to the extremes of 5 and below, then COT index should move higher as we see the bullish move continue in the spot market. In the longer term we should see the bullish momentum continue provided the chart does not retrace back into the extreme, but allied with the technical analysis of the chart, and supported by my view of gold prices, I think this is unlikely at present.