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Dollar Index:

The September dollar index advanced 39.8 points on volume of 48,718 contracts, Total open interest declined by a massive 7,388 contracts, which relative to volume is approximately 410% above average meaning there was huge liquidation on yesterday’s gain. The September contract lost 6,839 of open interest as it approaches expiration.

As this report is being compiled on September 3, the September contract is trading sharply higher, up 63.6 points and is getting close to generating a short term buy signal. For this to occur, the low of the day must be above OIA’s key pivot point for September 3 of 96.701. We have no recommendation.

Euro: The euro is getting close to generating a short term sell signal.

The September euro lost 56 pips on volume of 195,389 contracts. Total open interest increased by 1,556 contracts, which relative to volume is approximately 60% below average, but an open interest increase in yesterday’s trading is negative and is the second day in a row that total open interest has increased on a price decline. This confirms that short sellers are again in control and driving prices lower.

As this report is being compiled on September 3, the September contract is trading sharply lower, down 1.18 cents and has made a daily low of 1.1088, which is the lowest print since 1.1021 made on August 19.  For the September euro to generate a short term sell signal, the high of the day must be below OIA’s key pivot point for September 3 of 1.1103. We have no recommendation.

British Pound:

The September British pound lost 6 pips on volume of 77,836. Total open interest increased by a massive 4,516 contracts, which relative to volume is approximately 130% above average meaning that huge numbers of new short sellers were initiating new positions in the pound and driving prices to a new low for the move of 1.5263. September 2 was the second day in a row that total open interest increased on a price decline.

As this report is being compiled on September 3, the September contract is trading 45 pips lower and has made a another new low for the move of 1.5218, which is the lowest print since 1.5323 made on June 9. As we said in yesterday’s report, large open interest increases may signal the pound is nearing a bottom and that the counter trend rally, which we have been discussing since the pound generated sell signals is at hand. Additionally, it appears that computer programs, which drive much of trading are putting commodity funds into short positions at oversold levels. We believe that a substantial counter trend rally will force the new short sellers to cover.

On August 27, the September and December pound generated short and intermediate sell signals and we continue to advise waiting for a counter trend rally before initiating bearish positions.

Swiss franc: The September and December Swiss franc will generate short and intermediate term sell signals on September 3.

The September Swiss franc lost 95 pips on volume of 18,614 contracts. Total open interest increased by a massive 1,090 contracts, which relative to volume is approximately 135% above average meaning aggressive new short-sellers were initiating new positions in large numbers and driving prices to a new low for the move (1.0312).

As this report is being compiled on September 3, the September Swiss franc is trading 43 pips lower and has made a another new low for the move of 1.0235.

Yen:

The September yen lost 30 pips on volume of 190,665 contracts. Total open interest declined by 3,473 contracts, which relative to volume is approximately 25% below average. The September contract lost 4,713 of open interest and this is the first day that open interest has declined on a lower close since the September contract generated short and intermediate term buy signals on August 24.

Market participants are initiating new short positions as prices decline, but the yen is holding up well. As this report is being compiled on September 3, the September contract is trading 13 pips above yesterday’s close while the euro, pound and Swiss franc are trading lower on the day. The September and December yen remain on short and intermediate term buy signals. We have no recommendation.

WTI crude oil: October and November WTI crude oil will generate short term buy signals on September 3. Beginning on September 4, clients should expect a pullback lasting from 1-3 days and this is the opportunity to initiate bullish positions. For subscribers to OIA Direct, please call with any question.

October WTI crude oil advanced 84 cents on heavy volume of 1,212,457 contracts. However, volume shrank from September 1  when the October contract lost $3.79 on volume of 1,335,539 contracts and total open interest declined by 31,129. On September 2, total open interest increased by 9,868 contracts, which relative to volume is approximately 60% below average, but the total open interest increase shows that new buying is pushing prices higher. The October contract lost 9,308 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in October and increase total open interest. This is bullish open interest action.

As this report is being compiled on September 3, the October contract is trading 71 cents above yesterday’s close and has made a daily high of $48.42, which is slightly below the September 1 high of 48.87.

From the August 31 report on WTI crude oil:

“The total open interest increase on August 31 was the third in a row on the recent price advance, which began on August 27.There were open interest increases in the October 2015 through March 2016 contracts, indicating there was aggressive buying across the board in the near months.”

“Interestingly, the talk in the financial press was that the advance was due to short covering, when this was clearly not the case. Remarkably, the advance was powered by new buying, not short-sellers covering positions and the open interest stats confirm this.”

Heating oil: October and November heating oil will likely generate a short-term buy signal on September 3.

Brent crude oil: October Brent crude oil will not generate a short-term buy signal on September 3 because the low of the day ($49.82) is below OIA’s key pivot point for September 3 of $50.29.

October Brent crude oil advanced 94 cents on volume of 876,833 contracts. Total open interest declined by 14,385 contracts, which relative to volume is approximately 35% below average, but yesterday’s open interest decline highlights the difference in open interest behavior between Brent and WTI. This has been consistent since the beginning of the rally on August 27. The October contract lost 19,773 of open interest and there were insufficient open interest increases in the forward months to offset the decline in October.

We expect that Brent will eventually generate a short-term buy signal, but WTI has been outperforming it and the spread between the two has narrowed to approximately $4.00. We have no recommendation.

S&P 500 E mini:

The S&P 500 E mini gained 31.00 points on volume of 2,217,805 contracts. Remarkably, total open interest increased only 196 contracts. As this report is being compiled on September 3, the September contract is trading 7.75 points higher, but has pulled back dramatically from the high of the day (1973.50).

We recommend a sideline stands because tomorrow is the US employment report and it is difficult to ascertain how the market will react one way or the other. September and December S&P 500 E mini contracts remain on short and intermediate term sell signals.