COT at unprecedented levels for USDX, May 30th 2005

I got a lot of positive feedback on last Fridays article on Gold and Silver COT. I also got questions about the COT structure for the US dollar index. As many readers noted the COT structure for the USDX is at unprecedented levels. The Commercials have never been as much short the USDX as they are at the moment. 

Looking back the past three years the commercials have been net short (gray area) the USDX only three times before (marked by yellow vertical lines). Every time this has preceded a several month long rather strong move to the downside.

Today we have commercial net short positions that look like the US trade deficit. Somebody is going long on the dollar very aggressively, but it is not the commercials. The French 'no' vote to the EU constitution hasn't done too much damage to the Euro (the main component in the USDX), at least yet even though we are at new mid term lows in the euro ($1.2471 an heading lower on May 30th 02:34 PM GMT+2h). 

This Euro weakness, which translates into USDX strength, might give the dollar rally legs to run a bit further. Maybe even for months. The French 'no' should not have come as a big surprise to anyone and IMO is quite a non-event. I am sure this will be portrayed as something more or less 'catastrophic' for the euro in the mainstream media and hence justify the dollar rally and raise the question whether we are now witnessing a real change of trend in the USDX. 

IMO there will be no real change of trend for the USDX even though the Euro is fundamentally also a basket of fiat paper trash. The unchanged fundamentals for the dollar (US triple deficits) and the COT structure tell me that we are bound to have a rather strong correction in the USDX to the downside sooner or later and that we will eventually break the 0.80 level in the USDX.

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