Weekly COT Report: Sterling Bears Pair Bets

Trading Themes: The US Dollar staged a recovery last week driven mainly by risk off flows amidst a retreat in risk-appetite fuelled by weak China data and renewed concerns for global oversupply in the Oil market.  USD remained bid throughout the week despite mixed data flow; ISM Manufacturing printed below expectations whilst the Non-Manufacturing index printed above expectations. On Friday the employment reports for April showed Non-Farm Payrolls were well below estimate whilst the Unemployment rate remained unchanged and average weekly earnings increased 2.5% YoY. Key domestic data focus this week will be on Retail Sales due on Friday.

EUR: Despite low inflation, Euro remains supported though battling a USD rebound.
GBP: A raft of weak economic data and resurgent Brexit fears keep GBP pressured ahead of the BOJ meeting this week which will be main focus.
JPY: Yen remains bid in wake of fruitless BOJ meeting. Some members now see inflation target time-frame needing to be pushed back.
CHF: A lack of EUR downside keeps the pressure off the SNB for now.
AUD: RBA slashed rates further to 1.75% to combat persistent low inflation – bank also highlighted the continued risks from China slow-down.
CAD: Fresh Oil weakness and weak domestic economic data weighing on the Canadian Dollar.

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

EURUSD Outlook – Bearish

ECB’s latest economic bulletin reiterated concerns of low inflationary pressure, expected to remain negative in the coming months before picking up during the second half of the year on base effects. ECB has started to expand monthly asset purchases to € 80 billion and “intended to run until the end of March 2017 or beyond if necessary”, hinting that additional stimulus is still on the table. In June, ECB will conduct its first operation of targeted longer term refinancing operations (TLTRO II). EuroZone GDP is the key domestic data focus this week.

COT Indicators

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

LFOrder Flow Trader Bullish

eucot

GBPUSD Outlook – Bearish

Sterling action was weighed upon last week by a fresh round of domestic data weakness and a deterioration in the Brexit outlook. On the data front, a series of worse-than-expected PMI readings highlighted the UK’s economic weakness with both Manufacturing & Services falling to three year lows. These moves were compounded by reports that the most recent Brexit polls show a return to strength for the VoteLeave campaign which once again have a slight majority. Traders now await the BOE May meeting for the latest outlook from the BOE which will include updated quarterly inflation report.

COT Indicators

  • Index sell signal ticks up
  • Strength sell signal ticks up
  • Momentum sell signal turns flat

LFOrder Flow Trader Bullish

gucot

USDJPY Outlook – Bullish

The Japanese Yen remained bid this week, extending gains from the recent BOJ meeting which saw the central bank surprise markets by refraining from further action. A retreat in risk-appetite over the week added further support for the JPY which is a traditional safe haven currency. Traders remain alert to possible official intervention midst reports midweek of GPIF selling. Trade Balance data will be the key domestic focus this week.

COT Indicators

  • Strength active sell signal ticks up
  • Index active sell signal ticks up
  • Momentum sell signal turns flat

LFOrder Flow Trader Bullish

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. The latest CPI data for Switzerland showed that inflation grew 0.3% MoM as expected, adding support for the Swiss Franc. Unemployment rate is the key domestic data focus this week.

COT Indicators

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

LFOrder Flow Trader Bullish

uchfcot

AUDUSD – Outlook Bullish

The RBA cut rates to a record low of 1.75% at its May meeting citing continued low inflation and a deteriorating inflation outlook alongside a continued slow-down in growth for Australia’s main trading partner China. The central bank has also revised lower their 2016 inflation forecast which now sees inflation hitting just 1-2%-year end versus 2-3% originally. Whilst the bank was keen to stress their concern for the inflation environment they remain optimistic about domestic economic growth and actually raised their 2016 GDP forecast by half a percent. Trades will be paying close attention to Key Chinese data this week which could affect AUD flows.

COT Indicators

  • Strength active buy signal ticks down
  • Index active buy signal ticks down
  • Momentum signal turns flat

LFOrder Flow Trader Bearish

aucot

USDCAD OutlookBullish

The Canadian Dollar was weighed upon last week by heavy selling in Oil and weak domestic data. Rising output in the Middle East and North Sea has spark renewed concern for global oversupply in Oil markets taking Crude $3 lower on the week. Canada’s trade deficit in March unexpectedly widened to a record C$3.41 billion ($2.66 billion) as exports dropped for a second month on widespread weakness. Canadian Unemployment rate on Friday dropped back to 7.1% from 7.2% previous.

COT Indicators

  • Strength sell signal ticks down
  • Index active sell signal consolidates
  • Momentum signal turns flat

LFOrder Flow Trader Bullish

ucadcot