In the currency markets the flow of the demand for the cash, options and futures contracts represents a change in the supply and demand for an individual currency. The money flow is a fundamental event combining macro economic activity and the shifting psychological attitudes. These flows have a direct influence on currency funds such as UUP, FXE, FXB and the other currency trusts.
Currency specs, who have big short positions in the euro and the pound, have reduced those positions. The euro short positions were reduced to 78,097 contracts down from 103, 528 in the prior week. There was also a modest reduction in the pound short positions to 53,629 contracts, down from the previous week's 59,681 contracts. Since the end of the COT report, there has been heavy liquidation of positions in the British pound. These changes have reduced USD longs.
The biggest change in the open interest (OI) was in the Japanese yen. Speculators had amassed a yen long position of 56,981 contracts. Intervention by the Bank of Japan caused those specs to lose money, as the yen lost to the USD. The yen long position was reduced to 22,264 contracts. This activity also decreased the USD short positions.
Last week the currency specs net position was a USD long of 135,412 contracts. The activity during the past week reduced this activity to 107,105 contracts. There has also been a trend for speculators to move toward the long side of commodity currencies.
The direction of the USD will probably be determined by whether the specs continue to sell out their long USD positions. Should the speculative attitude change, and the USD has appeal versus other major currencies, the recent USD liquidation makes the chance the rally could be vigorous.
Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in FXE over the next 72 hours.