COT Weekly Analysis: EUR Net Short Largest Since 2012

  • CFTC data shows sentiment remains firmly orientated towards USD strength with positioning showing the market remains bearish EUR and participants are happy to increase their short exposure with the added support of the ECB actions last week.
  • The largest short position is in the EUR, which accounts for over 50% of the total USD position. The market has increased its short exposure for the sixth consecutive week with its highest reading since June 2012 and demonstrates that market was well positioned ahead of and during the week of the ECB announcement of the expanded asset back purchase programme. Net shorts rose to 184,745 versus 180.730 the week before.
  • The other significant positioning changes of the week was witnessed in the AUD where the short position is now the largest since February 2014 with the market positioning for the potential of a rate cut at this week’s Reserve Bank of Australia Interest Rate meeting.
  • JPY net shorts decreased by 13,000 contracts to 65,000 contracts the lowest level of short positioning in the pair since July 2014 with market participants locking in profits ahead of this week’s Non-Farm payrolls data which will be the likely catalyst in the next directional move for the USD

EURUSD OutlookBearish

Summary:  Not a lot going for the EUR right now, even as ECB QE anticipation is out of the way and positions are of course heavily skewed to the short side. Fresh negatives include a highly combustible Greek/troika review in coming weeks, with recent sound bites from officials on both sides showing precious little goodwill amid ongoing ECB QE and instability in Russia all point to further pressure to come for the beleaguered Euro.

  • COT Strength at new lows, Index also at lows and Momentum is converging threatening a bearish cross confirming the broad bearish trend continuation
  • Order Flow Trader bullish

EUR2015-02-02 09_21_45-

eu2015-02-01 19_23_47-Reuters - currency futures positioning

GBPUSD Outlook –  Bearish

Summary:  BOE’s Forbes warns on potential for early UK rate rise given signs of productivity gains. Gov Carney raises likelihood of negative UK inflation prints and 10yr Gilts etch out new record yield lows. Never mind fundamentals (still decent growth and positive core inflation); it’s all about flows and with political uncertainties looming and a more doveish BOE stance, these remain GBP negative for now

  • COT Strength retreats from recent lows, Index consolidating at lows and Momentums upward drift stalls.
  • Order Flow Trader bearish

gu2015-02-02 12_17_07-

gu2015-02-01 19_26_49-Reuters - currency futures positioning

USDJPY Outlook – Bullish

Summary: Pretty much spent last week confined inside the 117.20 – 118.90 range, and from the looks of it, market is content to stand aside before any of these levels break. With the BOJ on hold at least until April month-end flows have been the main story with the USDJPY grinding lower in spite of the weaker than expected CPI data.

  • COT Strength continues to pull back from recent highs, Index bearish cross is confirmed with a bearish cross in momentum, suggesting less conviction in the uptrend at current levels.
  • Order Flow Trader bearish

uj2015-02-02 12_24_50-

uj2015-02-01 19_29_10-Reuters - currency futures positioning

USDCHF Outlook – Bearish

Summary:  USDCHF slowly recovering from the seismic SNB shock, the market is starting to find its way back to so called ‘equilibrium’via EUR demand and a Greek exit not as imminent as the market feared. Safe haven flows to provide CHF demand.

  • COT Strength sharp pull back continues, Index and Momentum bearish crosses with both indicators tracking lower this week.
  • Order Flow Trader bullish

chf2015-02-02 12_27_39-

chf2015-02-01 19_39_57-Reuters - currency futures positioning

AUDUSD Outlook – Bearish

Summary: Has little to commend it near term after printing five year lows last week. The iron ore price recovery has reversed, producing new lowest readings since 2009, with similar lows on copper. Markets expect a potential rate cut at this weeks RBA meeting should be followed by downgrades to CPI and GDP forecasts.

  • COT Strength ticks up from recent lows, Index and Momentum back testing recent extreme low levels
  • Order Flow Trader bearish

2015-02-02 12_33_54-

aud2015-02-01 19_41_38-Reuters - currency futures positioning

USDCAD Outlook – Bullsih

Summary:  The case for a quick BOC follow up easing at their March meeting continues to build notably, local banks have only passed on 15bp of the 25 bp cut while Statscan revisions have slashed 2014 jobs growth by close to a third. Rates markets are pricing in a 60% chance of another 25bp rate in March so the odds, while already better even, can certainly grow further. Markets targeting a test of the big 1.30 level next.

  • COT Strength Index and Momentum pull back from recent new highs, suggesting some profit taking after a 10% decline in the CAD in January
  • Order Flow Trader bullish

2015-02-02 12_37_53-

cad2015-02-01 19_44_25-Reuters - currency futures positioning