Weekly COT Anlaysis: SNB Cloud USD Advance, Longs Still Favoured

  • Sentiment favours long USD positioning, at $48bn in aggregate and having softened somewhat in response to short covering in CHF and JPY.
  • The largest short position is in EUR, making up 54% of the total USD position .Traders added to net short EUR positions for the fifth consecutive week, suggesting a build in bearish sentiment leading into the ECB decision. At $26bn, the net position is still below levels held last November and accordingly has room to grow adding weight to an already depreciating EUR.
  • GBP sentiment has deteriorated for a fifth consecutive week, to $4.3bln its widest level since mid-2013.
  • CAD sentiment has deteriorated for a fourth consecutive week, with rising gross shorts adding to existing pressure from declining longs. The $2.4bn net short position is now at its widest level since May, steadily narrowing the gap to AUD.
  • SNB driven turmoil has driven short covering in both JPY and CHF, with the latter’s net short position more than halving to $1.4bn a result of the largest decline in gross shorts since the 2013 taper tantrum.
  • For JPY, the broader market tone continues to dominate, leaving the net short $8.2bn at its narrowest since July.

EURUSD OutlookBearish

Summary: Draghi delivered an asset purchases programme and gave all the details. This has caused EURUSD to head lower and we expect this to continue as the ECB’s balance sheet is expanded towards the €3 trillion mark. In addition, should inflation not increase towards the 2% ECB targets then the ECB will continue its purchase program. 

  • COT Strength remains at depressed levels, to retest 2014 low levels, Index continues to tick down testing lows of 2014 and Momentum starting to roll over again threatening a bearish cross confirming the broad bearish trend continuation
  • Order Flow Trader bearish.

2015-01-26 09_03_33-

2015-01-25 20_17_46-Reuters - currency futures positioning

GBPUSD Outlook –  Bearish

Summary:  Increased disinflationary pressure, with risks of now heading into deflation as highlighted by the BOE’s Carney. In addition, the two members of the BOE who were previously voting for a rate hike now want to keep rates on hold. This on top of political pressure in the coming months should keep the downward momentum on GBPUSD.

  • COT Strength at new lows, Index consolidating at lows but Momentum continues to drift up from recent lows suggesting a potential slowing in the immediate decline.
  • Order Flow Trader bearish

2015-01-26 09_05_44-

2015-01-25 20_18_58-Reuters - currency futures positioning

USDJPY Outlook – Bullish

Summary: While other central banks in both G10 and EM have surprised on the doveish side recently, the BOJ remained firmly on hold at its latest meeting. While the 2015 inflation forecast was revised to 1.0%, well below the central bank’s target, the 2016 forecast was actually revised upwards.

  • Strength pulling back from recent highs, Index makes a bearish cross and Momentum pulling back suggesting a pause in the broader bullish trend.
  • Order Flow Trader bearish

2015-01-26 09_08_30-

2015-01-25 20_22_39-Reuters - currency futures positioning

USDCHF Outlook – Bearish

Summary:  With EURCHF now no longer being supported by the SNB and liquidity low in both option and cash markets, there has been heightened volatility in this currency. Markets expect this to continue over the coming weeks. Over the longer term markets expect the CHF to weaken against the USD but stay relatively flat against EUR.

  • COT Strength sharp pullback, Index makes a bearish cross and Momentum also makes a bearish cross
  • Order Flow Trader bullish

2015-01-26 09_12_07-

2015-01-25 20_25_39-Reuters - currency futures positioning

AUDUSD Outlook – Bearish

Summary: The upcoming CPI print poses a risk for AUD, given lowflationary prints elsewhere and the recent slew of doveish surprises from central banks. While iron ore prices have stabilized somewhat, copper prices have weakened significantly since the start of the year, markets expect AUD could weaken as a result. While expectations of easing in China could offer AUD some support, market looks to sell rallies.

  • COT Strength at new lows, Index consolidating at lows and Momentum consolidates at depressed levels. All indicators suggest a continuation in the broad bearish trend
  • Order Flow Trader bearish

2015-01-26 09_14_59-

2015-01-25 20_26_58-Reuters - currency futures positioning

USDCAD Outlook – Bullsih

Summary:  CAD could continue to weaken following the surprise BOC rate cut. Markets don’t see the output gap closing until 2017 at the earliest, the BOC sees it still closing at the end of 2016. Indeed, the BOC does say that if oil prices stay at these levels, the output gap is set to widen further.

  • COT Strength, Index and Momentum registering new highs supportive of continuation in bullish trend.
  • Order Flow Trader bullish

2015-01-26 09_16_22-

2015-01-25 20_28_05-Reuters - currency futures positioning