Weekly COT Report: Massive Short Covering In Sterling

Trading Themes:  USD was driven lower in the wake of a Dovish FOMC with the Fed downgraded their forecast for the 2016 rate-path citing increasing concern for global and domestic risks. The Fed now projects 2 rate hikes over 2016 down from 4 previously. Key data focus this week will be Durable Goods and Manufacturing PMI on Thursday followed by the headline GDP on Friday.

EUR: Quiet data calendar ahead of East holidays. Firmer equities weighing on EUR.
GBP: Political tensions and uncertainty damaging investor sentiment
JPY: Suspected BOJ intervention last week highlights the bank’s frustration with JPY strength. Risk of further intervention increases.
CHF: SNB keep rates on hold as EUR moves higher in the wake of the ECB. Swiss Trade Balance data eyed.
AUD: Firmer rsk sentiment, weaker USD, and positive domestic data support the Australian Dollar
CAD: Canadian CPI on Friday was below expectations though CAD to remain supported if Oil continues higher this week.

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

EURUSD Outlook – Bearish

The single currency continues to move counter-intuitively higher  in the weeks following the announcement of the ECB’s new stimulus measures as the policy divergence trade between EUR & USD has been diluted following the Dovish FOMC which saw investors sharply scaling back US rate hike expectations.

COT Indicators

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

LFOrder Flow Trader Bullish

eucot

GBPUSD Outlook – Bearish

Markets were caught off guard by a less-Dovish-than-expected BOE who failed to provide the catalyst for further downside in Sterling. The BOE cited rising productivity and tighter labour market conditions as supportive of incomes and consumption also noting that a rate increase is more likely than not as an increase is needed to help boost inflation back to target. Positioning data shows a massive short-covering in Sterling which saw its largest positive weekly change since April 2009. in Traders now focus on inflation data this week to see if there is any improvement given last month’s week print.

COT Indicators

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

LFOrder Flow Trader Bullish

gucot

USDJPY Outlook – Bullish

The BOJ kept rates on hold last week as expected though did note the room for further easing if the action was warranted. Despite this outlook JOY continues to be supported, driven further higher this week in the wake of sharp USD weakness fuelled by a Dovish FOMC. CPI data is the key domestic data focus this week.

COT Indicators

  • Strength active sell signal, ticks up
  • Index active sell signal, ticks up
  • Momentum flat, awaiting new signal

LFOrder Flow Trader Bearish

ujcot

USDCHF Outlook – Bullish

With EUR having moved counter-intuitively higher in response to the latest ECB measures, it seems some pressure has likely been alleviated from the SNB who refrained from moving on rates at their recent meeting. Worth noting however that recently  SNB’s Jordan has warned of a “nuclear” option in the event of continued CHF appreciation stating that the SNB can cut the exemption from negative deposit rates that it extended to most domestic banks’ reserves. Trade Balance data eyed this week.

COT Indicators

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

LFOrder Flow Trader Bearish

uchfcot

AUDUSD – Outlook Bullish

The Australian Dollar continues to forge higher ground supported by stronger commodity prices, a weaker US Dollar and better domestic jobs data. Australian Unemployment rate ticked down to 5.8% from 6% previous. The RBA have recently noted room for further easing and traders may now be wondering if the RBA are likely to step in should AUD continue to strengthen. In the absence of key domestic data expect AUD to be driven by risk flows.

COT Indicators

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

LFOrder Flow Trader Bullish

aucot

USDCAD OutlookBullish

The Canadian Dollar continues to be supported by rising Oil prices as optimism continues to grow ahead of the April 17th meeting between Russian led non-OPEC producers and OPEC leader Saudi Arabia to discuss a potential output freeze. US crude inventories continue to build, marking a fifth consecutive week of record high builds, though latest data showed a much smaller build than forecast. Canadian CPI on Friday printed below expectations underscoring the weakness in the Canadian economy despite the neutral tone of the recent BOC meeting.

COT Indicators

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

LFOrder Flow Trader Bearish

uccot