In recent articles, we have been looking for GBP/USD, EUR/USD to fall and both pairs, have seen weakness and got low risk entries near the highs using our favorite tool sentiment tool in Forex the COT Net Trades Positions. This weeks report points to more weakness in both pairs.

The Commitment of Traders Report (COT) Is realized on Friday by the CFTC showing positions from Tuesday. These are actual positions on the IMM Futures exchange and give a snapshot of what could be happening in the overall FX Markets.

Trading Divergence on The COT

One of the best ways to use the report is to watch the movement of two groups on the report:

Large Speculative Funds:  These are hedge funds and large managed funds who can very often be right above long-term trends but at turning points, they tend to be wrong - their motivation is greed or fear and they tend to increase longs or shorts to high levels as trends reverse.

Commercials:  This group are hedgers they make or lose no money - they simply hedge a cash position and they have a deep knowledge of the fundamentals. They will only move their hedges aggressively when prices move too far from fair value.

On the report watch for large speculators and commercials to diverge in terms of their view and then look to trade with the commercials.

The COT is NOT a timing tool but will alert you to the possibility of a trend reversal. Keep in mind the hedgers make or lose no money and have staying power to ride out moves against them so its important to time with technicals and use sound money management Here we will look at the latest COT Net Traders report in terms of GBP/USD and EUR/USD and look at the key technical levels in both pairs.

GBP/USD

We showed how extreme the positions were last week with the two charts below and of course, the position is now even more extreme which points to more downside.

EUR/USD 

On the chart below we can see speculators loaded up longs to a similar level to May where the euro fell to the downside and we would expect more downside in this pair - Also in historical terms both long positions below are near 3 year highs in terms of divergence between large speculators and commercials.

The above points to more downside in both pairs - In terms of the big fundamentals behind the charts check out our articles last week. Our views on where we could go next in terms of price action are noted on the charts below

Technical Analysis 

Key levels of support and resistance in terms of EUR/USD and GBP/USD...