I generally don't look too much inot the CoT report, but it catches my attention when I see the price diverging with the futures positioning. That's often a sign that we are near a top or bottom. The problem is that the CoT is a lagging indicator since it's reported with a one week lag. But it's a warning sign nonetheless.
Now, the main driver of major FX pairs are yield differentials. In the chart below, we can see that the EURUSD price (red line) is diverging massively with the EU/US differential (blue line). Something has to give (granted that yields might be undergoing technical distortions and not being fundamentally driven).
So, the risks to USD shorts (in the short term) will probably come from positive signs on negotiations with China and a general de-escalation so that the aggressive rate cuts bets get unwound (most likely scenario) or the Fed starts to put on the table rate hikes (which is the most unlikely scenario right now).
This article was written by Giuseppe Dellamotta at www.forexlive.com. Read More Details
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