Weekly COT Analysis: USD Longs Approaching 2014 Highs

• Bullish USD positions continue to be built, with increases in the net short EUR, CHF, GBP, AUD and CAD positions this week. The net long USD position has climbed back up to $46.5bn, now just $3bn below its November 2014 record.

• Traders added again to their short AUD position, which at $4bn is the largest since February 2014; while the net short CAD position is stable at $1.4bn. The divergence is surprising considering both currencies reached fresh multi-year lows this week and AUDCAD has rallied 4% since December 23rd.

• EUR sentiment has deteriorated for a third consecutive week, with the net short widening $0.8bn w/w to $23.9bn—a level that remains well within the $28.1bn net short from early November. The impetus continues to emanate from the short side, as investors add to bearish positions at an accelerated pace.

• The deterioration in CHF sentiment is notable, widening $0.9bn to $3.0bn; in contract terms the net short is at its widest since mid -2013.

EURUSD OutlookBearish

Summary: EURUSD has continued to decline due to falling inflation expectations leading to the increased market expectation that the ECB will announce a QE programme. With the region now in deflation, the market maintains a net bearish outlook on the currency. The ECJ’s ruling on the OMT will be a key risk event this week. After that there is the January 22 ECB meeting and the Greek elections. All these events will likely bring volatility

  • COT Strength remains at depressed extreme lows, Index ticking back down and Momentum starting to roll over again all suggesting the broader bearish trend remains intact.
  • OrderFlowTrader bearish.

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2015-01-11 20_19_24-Reuters - currency futures positioning

GBPUSD Outlook –  Bearish

Summary:  GBP has started the year on a weak footing, and the market expects this will continue into 2015. Political uncertainty, a softening growth outlook and declining inflation are likely to weigh on GBP. What’s more, we have begun to see signs that investment inflows into the UK have slowed, which leaves the currency vulnerable given its trade deficit. The upcoming inflation print will be the key release this week.

  • COT Strength retesting recent lows, Index ticking back down to lows and Momentum continues to drift up from recent lows suggesting a potential slowing in the immediate decline.
  • OrderFlowTrader bearish

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2015-01-11 20_23_52-Reuters - currency futures positioning

USDJPY Outlook – Bullish

Summary: The JPY has gained support over recent days due to falling risk appetite. Now falling global bond yields have decreased yield differentials between Japan and the rest of the world reducing the incentive for JPY investors to export capital, a supporter for the currency. There is a risk, however, of weaker inflation bringing the BOJ easing debate back. Should this occur then that would weaken the currency over the medium to long term.

  • Strength pulls back from recent highs, Index ticking back down and Momentum pulling back suggesting a pause in the recent bullish trend.
  • OrderFlowTrader bearish

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2015-01-11 20_25_49-Reuters - currency futures positioning

USDCHF Outlook – Bullish

Summary:  The SNB cut its deposit rate to negative territory in order to prevent further appreciation of the CHF. Falling risk appetite over recent days and increased market pricing of the ECB announcing a QE programme has put downward pressure on EURCHF causing the central bank to intervene in the markets. Due to these two forces we expect EURCHF to remain range-bound. Over the medium term, due to deflationary pressures and USD strength the market remains bullish on USDCHF.

  • COT Strength at new highs. Index and Momentum have issued buy signals and are positively orientated
  • OrderFlowTrader bullish

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2015-01-11 20_28_05-Reuters - currency futures positioning

AUDUSD Outlook – Bearish

Summary:  AUD looks poised to weaken over coming weeks as high yielders face pressure against USD. Should risk continue to weaken, due to a combination of concerns about slowing global growth and political risks in Europe, high beta currencies such as AUD could see pressure. Growth in China will also be key for AUD. On this front, the December data due out over the next week will be important to watch.

  • COT Strength rolling back towards recent extreme lows, Index retesting recent lows and Momentum ticks back down suggesting broader bearish trend continuation.
  • OrderFlowTrader bearish

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2015-01-11 20_29_51-Reuters - currency futures positioning

USDCAD Outlook – Bullsih

Summary:  CAD has been supported by a robust US growth outlook, and has outperformed its commodity currency peers. However, falling oil prices will impact the economy given the large amount of oil production. Beyond the direct effect of lower oil revenues, this also poses a risk to banks and real estate, both of which have indirectly boomed as a result of oil over recent years. The market believes the USDCAD is now poised to head higher.

  • COT Strength and Index remain bullish retesting recent highs, Momentum also continues retesting recent highs supportive of continuation in bullish trend.
  • OrderFlowTrader bullish

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2015-01-11 20_31_32-Reuters - currency futures positioning

 

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