The latest CFTC Net Traders report shows that in the week ending 7^th June Speculators increased there short Dollar bets and later in the week of course the Dollar rose. This report is essential reading for any trader in gaining clues to future market direction to currencies so lets look at the latest report and how to read it correctly for bigger FX profits and look at a big trend shaping up right now...

The value of the dollar's net short position rose to $22.98 billion in the week ended June 7, from net shorts of $15.73 billion a week earlier. This number is taken from positions held on the International Monetary Market futures contract and is made up of speculators in the yen, euro, British pound, Swiss franc, Canadian and Australian dollars.

Let's look at how it warned us of a great trade in the Euro this week that made a few hundred pips and also we have an open profit of another few hundred pips in the Aussie Dollar and the positions are warning of more profit to come.

The Euro

The Euro saw speculators start the week in bullish mode and on Tuesday last week when the report is calculated. Euro net long positions more than doubled Non-commercial speculators were net long the Euro to a total of 51,836 contracts in the week ended June 7, up from 21,970 contracts the week before.

Of course they were buying the interest rate story in Euro zone but the value of the report is not just in showing what the speculators are doing - but how their positions compare to the smart money commercial hedgers and how they view the market. Let's look at the report and how to read it correctly.

EURO FX - CHICAGO MERCANTILE EXCHANGE                                Code-099741
FUTURES ONLY POSITIONS AS OF 06/07/11                         |
--------------------------------------------------------------| NONREPORTABLE
NON-COMMERCIAL      |   COMMERCIAL    |      TOTAL      |   POSITIONS
--------------------------|-----------------|-----------------|-----------------
LONG  | SHORT  |SPREADS |  LONG  | SHORT  |  LONG  | SHORT  |  LONG  | SHORT
--------------------------------------------------------------------------------
(CONTRACTS OF EUR 125,000)                           OPEN INTEREST:      296,126
COMMITMENTS
96,555   44,719    1,155  133,843  193,019  231,553  238,893   64,573   57,233
CHANGES FROM 05/31/11 (CHANGE IN OPEN INTEREST:     26,025)
16,061  -13,805     -564   -2,254   28,633   13,243   14,264   12,782   11,761

The Non commercials are large funds, who have reportable position and they built up longs in response to the idea Euro zone would raise interest rates and on this report they hold twice as many longs as shorts.

On the other hand, the commercials who are simply hedgers, were even in terms of longs and shorts the week before but added 28,633 short contracts this week - selling the the Euro rally hard and of course, the Euro broke to the downside proving the commercials were right to sell into it.

On this report its not what the speculators are doing which is important – its how their position relates to the commercials and the reason why is simple:

Speculators are influenced by greed and fear – commercial hedgers are not, as there not out to make money from currencies - their simply hedging. They will only move their hedges when a currency moves to far from fair value and that's what they did in the Euro.

The commercials know fair value and are RIGHT at just above every major marketing turning point while the large speculators are always caught the other way. So by looking at how the commercial and speculative positions are moving, you can gain an edge in where a currency might go next. The best set ups are extremes and at present, the best trading opportunity looks to be in the Australian Dollar.

Australian Dollar – Big Break to the Downside Coming

The large speculators love this currency and hold over 6 times as many longs as shorts and despite the break from 1.1000 back to 1.06000, they still remain long but the commercials take a different view – they remain heavily net short holding well over 3 times as many shorts as longs.

AUSTRALIAN DOLLAR - CHICAGO MERCANTILE EXCHANGE                      Code-232741
FUTURES ONLY POSITIONS AS OF 06/07/11                         |
--------------------------------------------------------------| NONREPORTABLE
NON-COMMERCIAL      |   COMMERCIAL    |      TOTAL      |   POSITIONS
--------------------------|-----------------|-----------------|-----------------
LONG  | SHORT  |SPREADS |  LONG  | SHORT  |  LONG  | SHORT  |  LONG  | SHORT
--------------------------------------------------------------------------------
(CONTRACTS OF AUD 100,000)                           OPEN INTEREST:      145,346
COMMITMENTS
78,547   13,342      147   32,724  112,579  111,418  126,068   33,928   19,278
CHANGES FROM 05/31/11 (CHANGE IN OPEN INTEREST:     27,844)
6,517    1,327      142   20,624   22,286   27,283   23,755      561    4,089

The fact is the Australian Dollar has been driven to far up on greed and the view that all is well in the global economy when it clearly is not.

We are short into the 1.1000 level and we have now broken nearby support at 1.06000 and we expect large speculators to start getting hit on stop and this will lead to a test of 1.0000.

Since 2009 (in a little under 2 years) the Aussie Dollar nearly doubled in price and its now severely overvalued. The commercials know this but the speculators, want to hold on and see another test of the highs but the Aussie bull run looks to be over, we have sold off from the highs and now were looking for a huge corrective break to unfold.

Its FREE and Gives You a Trading Edge so Use it

Its not a timing tool, you need to use your charts for that - but in terms of giving you advance warning of high odds trading set ups, there is no better report than the CFTC Net Traders Report. Best of all its FREE for any trader to look at and use. So - learn how to use it correctly and start making the big profits from the big moves.

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