Weekly COT Anlaysis: USD Longs Increase, SNB Not Factored

  • The net long USD position rose this week to $49bn, almost at the highs recorded in November. Most week-over-week changes were immaterial, though there was a notable build in the net short GBP and EUR positions.
  • The net short CHF position (this data is dated two days before the SNB action) had been building for almost a year and at -$3.2bn was at its widest since June 2013. Since Tuesday, CHF is up almost 20%, leaving shorts wrong-footed. Sentiment towards CHF will have materially changed.
  • Traders are increasing their bearish bets against EUR and GBP to -$25bn and -$3.5bn, respectively. This brings the net short GBP position to the widest level in 15 months.
  • Bearish sentiment toward CAD is relatively modest with a $1.8bn net short position, and investors do not appear to have captured much of the recent decline in the exchange rate.
  • AUD, bearish sentiment appears to be showing signs of stabilization, narrowing for the first time in four weeks to a net short $3.7bn position.
  • JPY sentiment is bearish, with the net short widening a modest $0.5bn w/w to $10.0bn. Investors have pared back risk on both sides, and we note that the bearish position has remained relatively range bound over the past year

EURUSD OutlookBearish

Summary: The long anticipated ECB meeting comes next week, with both the markets and ourselves expecting QE. With QE largely priced in, there is a risk that the ECB disappoints. Markets will likely look to sell EUR on bounces from an ECB disappointment. Returns on European assets are unlikely to pick up, particularly if the ECB does not act. As investors move out of EUR, this would drive the currency lower.

  • COT Strength remains at lows, Index continues to tick down retesting lows of 2014 and Momentum starting to roll over again threatening a bearish cross confirming the broad bearish trend continuation
  • Order Flow Trader bearish.

2015-01-19 09_07_42-

euro

GBPUSD Outlook –  Bearish

Summary:  Markets expect the GBP decline to continue given the weak inflation outlook, political uncertainty and moving rate expectations. In addition, forward looking PMI services, a large part of the UK economy has also started to show signs of slowing. Economists now expect further downside for inflation, which could keep the currency under selling pressure, especially against a generally strong USD environment.

  • COT Strength at new lows, Index ticking back down to retest recent lows and Momentum continues to drift up from recent lows suggesting a potential slowing in the immediate decline.
  • Order Flow Trader bearish

2015-01-19 09_09_28-

cable

USDJPY Outlook – Bullish

Summary: The JPY has continued to see support on the back of falling risk appetite and a lack of further measures from the BOJ and Abe administration. Low oil prices are likely to push YoY core inflation to negative territory in early spring, but the BOJ is unlikely to take any further easing measures in the near future.

  • Strength ticking back to test recent highs, Index moving back up and Momentum higher also suggesting a continuation in the broad bullish trend.
  • Order Flow Trader bearish

2015-01-19 09_14_57-

yen

USDCHF Outlook – Bullish

Summary:  The SNB removed its minimum exchange rate policy and replaced it with further rate cuts. Given the Swiss struggle with deflation, markets expect the SNB to continue to monitor the CHF TWI. The central bank could purchase a broader range of currencies to avoid excessive CHF appreciation. In particular, the SNB is likely to purchase USD, which could place a floor under USDCHF.

  • COT Strength and Index remain bullish, Momentum has converged. Better read on market positioning will be given next week as the data will include positioning post SNB
  • Order Flow Trader bearish

2015-01-19 09_19_56-

swiisy

AUDUSD Outlook – Bearish

Summary: AUD has received support over recent days from a combination of stronger domestic data and expectations for monetary easing in China. However, market remains bearish on the currency for a few reasons. First, falling commodity prices will have spillover effects to the financial sector, where much of the build up in leverage was based on commodity linked assets. Second, we are starting to see declines in non oil commodities, most notably the recent fall in copper.

  • COT Strength at lows, Index ticking up from  recent lows and Momentum ticks up from depressed levels.
  • Order Flow Trader bullish

2015-01-19 09_30_44-

aussie

USDCAD Outlook – Bullsih

Summary:  As oil prices continue to be weak markets believe that USDCAD is now poised to head higher. While falling commodity prices are likely to put pressure on the CAD in the near term, over the longer term there are second round effect of lower oil prices to think about. There is a risk to banks and real estate, both of which have indirectly boomed as a result of oil over recent years.

  • COT Strength, Index and Momentum registering new highs supportive of continuation in bullish trend.
  • Order Flow Trader bullish

2015-01-19 09_28_24-

loonie

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