The latest Commitment of Traders (COT) report shows that investors have piled $3.6 billion into the AUD/USD futures in the week ended March 29, pushing the level to a record-high $8.8 billion. The dollar figures are calculated by Nomura Securities International.

AUD/USD rallied 1.45 percent for the week ended March 29.

Meanwhile, the long EUR against USD (EUR/USD) position remained sizable at $9.99 billion for the week ended March 29, up from $8.58 billion the previous week. 

EUR/USD rallied 1.39 percent for the week ended March 29. 

Traders care about these extreme levels shown on the COT report because they often mark reversals.

For example, with respect to the EUR/USD, June 2010’s bottom, November 2010’s top, and January 2011’s bottom were all marked with extreme positions in the prevailing direction (i.e. June 2010’s bottom was marked with extremely bearish positions in the euro).

The explanation is that extreme positions mean speculators who hold weak or marginal positions are participating; once fundamentals change, the unwinding of these marginal positions often triggers large moves in the opposite direction.

For the EUR, a reversal (or at least a correction) can be triggered if European Central Bank (ECB) President Jean-Claude Trichet doesn’t back up expectations that April 7’s interest rate hike is one of several to come. 

For the AUD, a dampening of global risk appetite, fall in commodities prices, or a dovish tone from the Reserve Bank of Australia could send it tumbling.  

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