The USD Index remains strong for now but price is approaching a major swing level, will the currency remain strong or will the market reverse?

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The Commitment Of Trader Reports

The CoT reports have been showing an increase in short contracts by the commercials as the USD price rallies. This is the nature of the commercials in the market they are looking to buy or sell future contracts to hedge future business. They make up a large portion of the open interest in the CoT reports. As the price of an asset moves higher they will likely increase their short positions, as an asset moves lower they will likely increase their long positions. However, it comes to a point where the positions in particular direction become large enough that the market shifts. 

In this case for the USD index we can see that the commercials are increasing their short positions significantly but are also adding to their long positions. This shows us that they see value at these prices but are also hedging in case prices continue to move higher. What we want to see before a shift in the price is the long positions decreasing and short positions increasing to levels of extremes like pictured above. 

So in short, the price of the USD Index in the near term is likely to continue higher in the trend until we see the shift from the commercials. 

The Lower Time Frame

How does this help us currently?

Well as the market is in an uptrend we can continue to look for long positions however we need to be aware that a shift in this sentiment could be approaching and we need to take caution when adding long positions. If the price forms a weekly rejection of the zone we would likely see the lower time frame such as the 4hr begin to form some lower lows and lower highs. We expect to see this after a breakout of the highs.

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About The Author

Jonathan Kibbler

Jon Kibbler, our Senior Market Analyst, boasts over a decade of trading experience. He specializes in dissecting the intricacies of financial markets and sharing his expertise with precision. Jon’s insights have been featured at renowned events and platforms like Coindex, Forex Analytix, and Forex.com.

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