The COT data for this week shows an increase in the cot index which is now starting to climb away from the extreme lows of the last few weeks, suggesting that we are now seeing the long awaited reversal in the Australian dollar, a move which is reflected in the spot market against many other currencies, of which the US dollar is typical. A look at the weekly chart for the Aussie dollar, reveals a double bottom over the last 6 months, with a breakout from this trading range now imminent, and with a wide spread up bar, the AUD/USD pair are poised to break through the resistance level at 0.7090.   However as always we need to bear in mind that the COT index is a direction indicator only, and not a timing indicator, and should only be used to reinforce or support our view of the spot market.

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The Australian Dollar Cot data is very interesting this week as there appears to have been a major transfer of future contracts by the commercial holders who are now net short.  This is not unprecedented and happened at the end of last year.  This does not necessarily signal a long term change in sentiment, merely a response to current market conditions and does not alter my bullish long term of the Aussie Dollar, confirmed to some extent by the weekly chart which is now showing a double bottom. However, in the short term we may see prices continue to fall this week following the shooting star of last week.

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As we can see from this weeks COT report for the Australian Dollar (AUD ), the index for the commercial contract positions continues to remain at the extreme of the indicator, a position we have seen for the last few weeks, and one which aligns the situation in the spot market for the Aussie dollar, which has been moving sideways and consolidating since early November 2008. Whilst the COT index cannot give us precise timing signals for our trades, it can give us a direction for the future, and based on the above chart we should see the Australian Dollar begin to strengthen in the market in the short to medium term. In other words we should see the AUD/USD pair breakout and move higher, and indeed we should see this in other AUD denominated pairs.