As you know, we share a table that includes data from the COT report every week. The table shows the recent net position (long minus short) as well as the change of the positions which will give hints about the market sentiment about the securities for the short-term. In this post, we will show an alternative way to study those numbers to determine the medium to long-term direction.

Since 2008, whenever Euro positions made tops way above the normal average, EURUSD has made a top as expected. These tops usually end with a FED intervention (Operation twist, taper tantrum, rate increase). This time however markets pricing ahead of the possible tapering but the outlook seems the same. Those past three times, EURUSD fell with an average of %17. This time, EURUSD fell to 1.17 which equals nearly %4 from the top. But, with a high probability, we did not see the bottom yet. Downward moves may extend as taper talk matures and rate increases happen.

For the shorter term, as long as the price stays below the 1.1980-1.20 zone, bearish pressure may continue. 1.1835 is the first major support, but down moves may extend to 1.1615 if the bearish flag formation reaches its target. It is still unclear that will a fall like before happens and 1.10-1.05 levels seen, but the fundamentals don’t support that kind of fall yet, but it may in the near future.