Weekly COT Report: Muted Markets In Wake Of Brexit

Trading Themes: USD retreated from recent highs as safe haven demand weakened in the face of a recovery in risk assets.  On the data front, we saw better-than-expected Consumer Confidence alongside a consensus print in Core PCE in May. US rate hike expectations have been dialled back in the wake of the UK’s Brexit decision, in line with the Fed’s earlier warnings over the likely impact to the US and global economy from such a move. Attention this week turns to the June NFPs on Friday which are expected to rise to 180k from last month’s dismal 38k reading. We also have the June FOMC meeting minutes though these will likely seem less relevant in the wake of the UK’s Brexit move.

EUR: Markets anticipate further ECB measures in the wake of Brexit. ECB in wait-and-see mode currently
GBP: Price remains under pressure as BOE’s Carney signals potential summer rate-cut.
JPY: Markets anticipate further BOJ measures the wake of Brexit. BOJ in wait-and-see mode currently
CHF: Safe haven demand driving Swiss Franc higher, SNB remain active in market. CPI in focus.
AUD: AUD bolstered by weakened USD and recovery in risk assets due to expectations of global easing.
CAD: Oil remains supportive as risk assets recover though traders wary of possible BOC easing.

Let’s take a look at what the latest COT report data is showing us from a trend and net change week over a week perspective…

  • EUR bearish, increased on the week
  • GBP bearish, decreased on the week
  • JPY bullish, increased on the week
  • CHF bullish, increased on the week
  • AUD bearish, decreased on the week
  • CAD bullish, flat on the week

EURUSD Outlook – Bearish

European Central Bank President Mario Draghi said in a closed-door session that growth in the euro area could decline by as much as 0.5% point for the next three years cumulatively. EU government chiefs took the historic step of meeting without one of the bloc’s members for the first time, they lamented the British decision to part ways then began to lay plans for a new union without the UK. That included setting the parameters of Britain’s future relationship with the EU, and insisting that negotiations to finalize secession won’t be started until the UK gives official notification of departure.  On the data front EZ CPI was better-than-expected in June rising on both Core and headline readings. Light data flow this week with Thursday’s ECB minutes the main focus.

COT Indicators

  • Index active buy signal ticks down
  • Strength active sell signal ticks up
  • Momentum sell signal ticks down

LFOrder Flow Trader Bullish

eucot

GBPUSD Outlook – Bearish

BOE governor Mark Carney signalled that the central bank could announce additional stimulus measures in the upcoming policy meetings as early as July. “Over the horizon, there’s Financial Policy Committee decisions next week, there are two monetary policy committee meetings this summer, July and August, and I would look at those as a bit of a package, as meetings”. Traders are expecting BOE to cut rate after the comments and if this were to happen in July, it is definitely much sooner than we had expected. Two top ratings agencies have downgraded the Britain’s sovereign credit score, judging last week’s vote to leave the European Union. S&P dropped the grade from AAA to AA and warned more downgrades could follow. A raft of UK data is upcoming this week though main focus will be the BOE’s financial stability report on Tuesday.

COT Indicators

  • Index signal turns flat, await new signal
  • Strength sell signal ticks up
  • Momentum buy signal given

LFOrder Flow Trader Bearish

gucot

USDJPY Outlook – Bullish

The Japanese Yen pulled back from recent highs last week as a recovery in risk assets saw diminished safe haven demand for the currency.  JPY strength remains a concern for Japanese officials, with the BOJ saying it would respond to extremely volatile exchange-rate moves, signalling a readiness to intervene to stem the JPY strength. Japanese Retail Trade and Retail Sales prints painted the picture of subdued domestic demand in May. On the data front Retail trade tumbled 1.9% YOY in May, extending the 0.9% YOY decline in April while Retail Sales were flattish from April to May after falling 0.1% in the previous month. Despite huge stimulus package, the government is still confronted with the challenge of reviving domestic demand amid an ageing population. CPI fell for a third straight month in May falling 0.4%, putting further pressure on the BOJ to counter the failing economy. Traders will be paying close attention to BOJs Kuroda, who speaks this week, for any comments regarding the BOJs intentions in the wake of Brexit volatility

COT Indicators

  • Strength active sell signal, ticks down
  • Index active sell signal ticks down
  • Momentum buy signal ticks down

LFOrder Flow Trader Bullish

ujcot

USDCHF Outlook – Bearish

USD weakness in the face of unwinding US rate hikes expectations have lent support to the Swiss Franc in recent sessions with price also boosted by safe-haven demand in the wake of increasing market volatility in the wake of the UK Brexit referendum. The SNB commented that they did infact intervene in the market to “stabilize the situation and will remain active in the market” to offset CHF buying. Domestic data focus this week is CPI on Thursday.

COT Indicators

  • Index sell signal ticks down
  • Strength sell signal given
  • Momentum sell signal given

LFOrder Flow Trader Bearish

uchfcot

AUDUSD – Outlook Bullish

 The Australian Dollar remained buoyant over the week supported by the recovery in risk appetite.  Data from Australia’s largest trading partner, China, kept sentiment intact with manufacturing PMI data printing in line with expectations in June. Alongside the support from data we saw Iron ore maintaining its upward momentum, with steel prices in China driving the sector.

COT Indicators

  • Index active sell ticks up
  • Strength signal turns flat await new signal
  • Momentum sell signal ticks up

LFOrder Flow Trader Bullish

aucot

USDCAD OutlookBullish

Traders cut bullish bets on the Loonie for the third straight week, according to the Commodity Futures Trading Commission statistics showed on last Friday. Net long Canadian dollar positions tumbled to 2,595 contracts in the week ended June 21 from 18,440 contracts in prior week. Despite the reduction in long positions, CAD improved over the week benefiting from moves high in Oil prices. Unemployment rate on Friday the main domestic data focus.

COT Indicators

  • Strength sell signal ticks down
  • Index active sell signal ticks down
  • Momentum buy signal ticks down

LFOrder Flow Trader Bullish

ucadcot