Weekly COT Report: Fresh Record Highs For Sterling Shorts

Trading Themes: A mixed week for the US Dollar which strengthened considerably over the week fuelled by positive prints in both ISM Manufacturing and Non-Manufacturing readings before reversing lower on weak September NFPs and increased Unemployment rate. US rate hike expectations suffered in the wake of the disappointing employment reports which suggest the Fed is not likely to move in November and indeed, has fuelled a downturn in expectations for December easing. Focus this week will be on the September FOMC minutes though they are not expected to provide much support for USD.

EUR: EUR remains supported despite banking sector and geo-political concerns
GBP: Sterling under heavy pressure following last week’s “flash crash”
JPY: Risk markets remain supported taking some upside pressure off JPY
CHF: Swiss Franc remains weak led by firm risk appetite
AUD: Aussie remains supported despite commodity weakness, China data in focus this week.
CAD: Canadian Dollar under pressure despite firmer Oil prices

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

EURUSD Outlook – Bearish

Bloomberg News reported the European Central Bank will likely gradually reduce bond purchases as it ends quantitative easing. An informal consensus has built among policy makers in the past month that asset buying will have to be tapered once a decision is taken to end the program, according to euro-zone central-bank officials, who asked not to be identified because their deliberations are confidential. On the data front, Eurozone Service PMI data and retails sales figures releases came in above market expectations and added to the EUR bid tone that has been seen since the ECB taper story

COT Indicators

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

LFOrder Flow Trader Bearish


GBPUSD Outlook – Bearish

Sterling started the week under significant pressure on the back of the confirmation by UK PM May the UK will officially trigger Article 50 and this begin the EU exit process by end of March 2017 at the latest. The announcement took markets by surprise leading to wave of selling. Despite positive September PMI readings over the week bearishness continued and during the early hours of Friday morning a suspected fat finger/algo error fuelled a 6% drop in GBPUSD. Selling started in response to comments by UK PM Hollande which urged the EU to take a tough stance on Brexit, moves were then exacerbated in thin liquidity conditions overnight.

COT Indicators

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

LFOrder Flow Trader Bearish


USDJPY Outlook – Bullish

In September, Japanese households had more favourable assessment of the economy. Despite data pointing to modest growth this quarter, households expected improvement in employment and overall livelihood, sending the sub-components to multi-year high. Japan’s gauge of the services sector was down by 1.4 point to 48.2 in September, posting another evidence of modest growth this quarter.

COT Indicators

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

LFOrder Flow Trader Bullish


USDCHF Outlook – Bearish

The Swiss Franc has weakened over recent weeks amidst a broadly risk on tone. Focus this week will be on Q2 GDP as well as Inflation data for August. SNB easing expectations have been paired slightly in the wake of the currency’s decline over recent weeks though the central bank is expected to continue to warn against any further strength.

COT Indicators

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

LFOrder Flow Trader Bullish


AUDUSD – Outlook Bullish

Retail sales grew 0.40% from July to August after flat growth from June to July. That was the quickest increase in seven months, driven by increased patronage in cafes, restaurants and takeaway food services. Performance of services index remained below 50, the point separating expansion from contraction, but a pick- up in sales and new orders pushed the reading higher (September: 48.9 vs August: 45.0).

COT Indicators

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

LFOrder Flow Trader Bullish


USDCAD OutlookBearish

The Canadian Dollar was under pressure this week despite strength in Oil markets as traders continue to expect further BOC easing. Unemployment data on Friday showed that the headline rate remained steady at 7% in September

COT Indicators

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

LFOrder Flow Trader Bullish