Weekly COT Analysis: USD Longs Pared Ahead Of Doveish FOMC

  • CFTC data shows USD aggregated net long position decreased 11.3% last week to a $38.7 billion as traders grew less bullish the greenback ahead of last week’s FOMC policy meeting which reflected a far more dovish than consensus stance by the FED with rate move expectations being pushed out to later this year early next year as the FED Chair Yellen highlighted that whilst the term ‘Patient’ had been removed from the statement the FOMC wouldn’t be impatient in making a move.
  • EUR net spec shorts increased to 193,774 or $25.7 Billion which represents an increase of 6%.
  • GBP net shorts increased for the third consecutive week, with net shorts rising to the highest levels since June 2013
  • JPY short positioning decreased 19.3% to 48,054 contracts.
  • AUD net short positioning decreased 62.6% to 28,807 contracts.

EURUSD OutlookBearish

Summary:  Saw a firmer week with short covering providing a bounce into the dovish FOMC meeting which saw EURUSD spike higher by over 400 pips only to reverse immediately. Ending the week in positive territory there is a chance that we could see some short term reprieve in EUR downside with signs of European reflation and USD positioning adjustment, but over the medium term the ECB’s QE program will lower yields in Europe and take EUR lower once more.

  • Strength active sell signal, reverse recent gains to retest 2015 lows
  • Index active sell signal, continues lower to retest recent lows
  • Momentum active sell signal, bearish move from convergence
  • Order Flow Trader Bullish

2015-03-23 12_24_42-

2015-03-23 12_25_06-Reuters - currency futures positioning

GBPUSD Outlook –  Bearish

Summary:  Ends last week around flat after being subjected to the same FOMC induced whipsaw seen across the USD basket. Any retracement higher in GBP should be viewed as a selling opportunity with recent data coming in soft and political risks stemming from the UK election gaining prominence. There is also a chance that this week’s CPI print will come in weak given that there remains low price rises in the retail sector and wages still aren’t rising in line with expectations.

  • Strength active sell signal, retreats from February highs
  • Index active sell signal, ticking up
  • Momentum active buy signal, bullish cross
  • Order Flow Trader bullish

2015-03-23 12_36_33-

2015-03-23 12_32_20-Reuters - currency futures positioning

USDJPY Outlook – Bullish

Summary: Conceded all gains made on the FOMC release and indeed ended the week pretty much flat. There is some scope for JPY to benefit over the short term with the materialisation of a deeper USD pullback. The BOJ is currently adopting a hand-off approach and there are reflationary signs out of Japan. The Nikkei however continues to push into fresh highs and should see USDJPY supported

  • Strength active buy signal, retreats from recent highs
  • Index active sell signal, testing 2015 lows
  • Momentum active sell signal, ticks up to test 2015 highs
  • Order Flow trader bearish

2015-03-23 12_39_40-

2015-03-23 12_39_54-Reuters - currency futures positioning

USDCHF Outlook – Bearish

Summary:  The dovish FOMC meeting saw USD longs unwind on Wednesday with the Fed suggesting that the pace of rate-hikes will be slower though data dependant. Softer data recently is turning market expectations back towards a September lift-off and as such there is scope for a deeper USD retracement. Over the medium term however the USD will continue to strengthen as rate-hikes move closer and any strong domestic US data will add acute strengthening.

  • Strength active buy signal, sharp decline to test 2014 lows
  • Index sell signal active, retesting 2015 lows
  • Momentum sell signal active, retreats from recent highs
  • Order Flow Trader bearish

2015-03-23 12_50_58-

2015-03-23 12_48_18-Reuters - currency futures positioning

AUDUSD Outlook – Bearish

Summary: Ends just inside positive territory on the back of the FOMC spike. Falling commodity prices have weighed on the Australian currency and should continue to do so as questions grow around global growth. Given its high-beta status, AUD should benefit from USD easing over the short term but expect downward continuation medium term and be aware of US data which will create short opportunities on upside prints.

  • Strength active sell signal, sharp increase to register new 2015 highs
  • Index active sell signal, sharp increase to test convergence levels
  • Momentum active sell signal, sharp increase to test convergence levels
  • Order Flow Trader bearish

2015-03-23 12_55_12-

2015-03-23 12_54_22-Reuters - currency futures positioning

USDCAD Outlook – Bullsih

Summary:  A more positive end to the week for the beleaguered Canadian currency which has been hammered recently due to the decline in oil prices. CPI data came in unchanged YoY but rose 0.4% MoM. Over the medium term, USD strengthening should re-emerge and there is also the prospect that loans made by the Canadian Government to the oil sector could become an issue.

  • Strength active buy signal, retreats from 2015 highs
  • Index active buy signal, continues to pull back from 2014 highs
  • Momentum active buy signal, consolidates in upper range
  • Order Flow Trader bullish

2015-03-23 12_59_18-

2015-03-23 12_59_37-Reuters - currency futures positioning