Weekly COT Report: EUR Bears Pull Back After ECB Snubs QE Extension

Trading Themes: The US Dollar continued higher last week despite Dovish comments from Fed’s Brainard who urged caution ahead of the FOMC next week. The latest inflation data for August provided further support with the headline reading printing 1.1% against 1% expected and core printing 2.3% against 2.2% expected. This data has further increased traders’ expectations that the Fed is on track to raise rates this year and markets are expecting a Hawkish tone to the FOMC meeting this week.

EUR: Data light week for the Euro, flows to be driven by USD
GBP: BOE remain on hold, citing positive data post-Brexit. Still ready to act if needed.
JPY: All eyes on BOJ this week with markets highly expectant of further easing but track record of BOJ disappointment weighs.
CHF: SNB on hold though CHF still deemed overvalued.
AUD: RBA in focus this week though no rate cut expected ahead of FOMC.
CAD: Initial strength in Oil this week on reports of a frozen shipment out of Libya lending support to begin the week. CPI on Friday.

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

EURUSD Outlook – Bearish

Eurozone showed stalling growth in July. Industrial production fell 1.10% since June, reversing the upwardly revised 0.8% growth in the previous month. Output contracted in Germany (-1.90%), and France (-0.60%), undermined by weakness in global demand. Lautenschläger, member of the ECB’s Executive Board, stated that the central bank should not pass fresh stimulus measures and should give its earlier policy measures time to work, while she was sceptical about any further interest rate cuts given the increasing side effects of such measure. Domestic data focus this week will be on EuroZone Consumer Confidence as well as the ECB’s Economic Bulletin published on Thursday.

COT Indicators

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

LFOrder Flow Trader Bearish

eucot

 GBPUSD Outlook – Bearish

UK’s consumer prices rose 0.6% YOY in August, sustaining the quickest pace of rise in price growth since Nov 2014. Retail price index decelerated last month (1.8% vs 1.9%) but producers’ price index quickened (0.8% vs 0.3%), depicting the impact of a weaker pound sterling. Britain’s firms hired 174k more workers from May-July, slightly more than the expected 171k. The nation’s jobless rate remained at its decade low of 4.90% while claimant count rate in August was also unchanged at 2.20%. Last month, 2.4k people filed for unemployment benefits after a drop of 3.6k claims in July. Job data pointed to contained short-term risks from Brexit fallout and was largely in line with earlier release of manufacturing and services PMI showing a broad base rebound in economic activities last month. After a data heavy week, only Public Sector Net Borrowing is o note this week.

COT Indicators

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

LFOrder Flow Trader Bullish

gucot

USDJPY Outlook – Bearish

Nikkei reported that BoJ will focus its policy on lower rates as its expansion of asset buying is reaching its limit. The Bank of Japan will be likely to explore ways to clearly and narrowly define conditions allowing for the easing program to be lifted when the central bank’s board meets next week for a comprehensive assessment of its easing policy, according to Nikkei reports. All eyes are on the BOJ this week.

COT Indicators

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

LFOrder Flow Trader Bearish

ujcot

USDCHF Outlook – Bearish

The SNB kept policy unchanged at current levels in its September rates meeting last week. Commenting on currency strength the SNB noted that “The Swiss Franc is still significantly overvalued”.  Referring to rates the central banks aid that negative rates and the SNB’s willingness to intervene in FX markets if needed are intended to make investment in CHF less attractive.

COT Indicators

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

LFOrder Flow Trader Bullish

 uchcot

AUDUSD – Outlook Bullish

Australian data released by National Australia Bank (NAB) sent mixed signals with one report pointing to moderation in business conditions in August yet another report showing that business sentiment has proven to be resilient to negative influences over recent months. Last month, business conditions index slipped (from 9 to 7) whilst business confidence index rose (from 4 to 6), the latter likely attributable to the recent 25bps cut in RBA’s cash rate, according to NAB. RBA meet this week and whilst no further rate cut is expected, traders will be keen to hear the bank’s latest assessment and outlook.

COT Indicators

  • Strength active buy signal ticks down
  • Index active buy signal ticks down
  • Momentum signal turns flat, await new signal

LFOrder Flow Trader Bullish

aucot 

USDCAD OutlookBearish

The Canadian Dollar has been under continued pressure this week as an uptick in Fed rate hike expectations exerts downward pressure from a stronger USD. Alongside this we have seen a furtherance of the carry unwind in commodity currencies as risk appetite has diminished amidst a rise in global bond yields. Domestic data focus this week will be on CPI on Friday.

COT Indicators

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

LFOrder Flow Trader Bullish

uccot