The Canadian Dollar (CAD) reached extreme trader positioning levels last week after the CFTC released the Commitments of Traders (COT) data on Friday. Large Speculators are now at a level never seen before in history. Does that mean the CAD will rally straight up from here? Of course note, the COT is does not forecast market direction. The COT does do a great job as a risk management tool and identifying trade opportunities that have skewed reward to risk ratio where over time, winning trades return percentage is higher than losing trades, as long as risk management is in place and stop levels are respected without any deviation.
That is what we have with the Canadian Dollar. The positioning is now set up, the next step would be to wait for market confirmation (aka news failure event) to enter the trade.
The first chart published by CMR shows current positioning and how it compares to the last two years or so. It is very obvious that Large Speculators (blue column) are aggressively increasing their short position in this market as Open Interest goes up along with net short positioning.
Here is the same chart, but over a longer period going back to 2008. It is not even close that currently, Large Speculators are at historic short levels.
This chart from TradingView shows price in addition to the CMR positioning indicator that allows traders to observe what happens when positioning gets to extreme levels.
For reference, here is the US Dollar Index chart which is worth watching since the index includes the Canadian Dollar as part of the different currencies the USD trades against.
Lastly we have Canada’s economic news schedule this week that may provide insight on how the CAD will perform and if the trade should be entered.
Hope you enjoyed today’s post. If you are interested in learning more about the Crowded Market Report and the services we provide, which includes more in depth analysis of all major markets including Equities, Currencies, Crypto, Fixed Income, Precious Metals, Industrial Metals, Softs, Grains and more, please visit www.crowdedmarketreport.com.
Thanks,
Jason Shapiro & The CMR Team
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Thank for everything you do! And great humble open-minded mentality. If ever it is useful to your approach, you can have real time positioning of retail investors on trading platforms for free. On average and according to their public statements, more than 2/3 of their clients lose money (IG Market, etoro, XTB, Trade.com, Plus500, FXCM…). So quite easy to take the opposite position when they get trapped. Apparently, they are still very long copper 😉
https://www.ig.com/fr/marketanalysis/ig-matieres-premieres/cuivre-high-grade/prompts/UME
Nice post Jason!