Weekly COT Report: AUD Bears Back In Town

Trading Themes: Building expectations for a possible June rate hike were sharply unwound last week in the wake of a shockingly low Non Farm Payrolls print for May which printed at just 38k vs the expected 160k. This data comes shortly after Fed Chair Yellen noted that a rate hike was probably appropriate in the coming months provided economic data continues to pick up in Q2. With this sharp decline in labour market conditions, confidence in this idea has now weakened materially. Traders wait to hear if Fed Chair Yellen will provide any colour on the Fed’s response when she talks in Philadelphia later today.

EUR: ECB remain on hold as expected. Inflation and growth forecasts revised higher, scope for further easing if needed.
GBP: Fluctuations around the dynamic Brexit outlook continue. UK data in focus this week.
JPY: Japanese Yen bolstered by delayed sales tax increase
CHF: A lack of EUR downside keeps the pressure off the SNB for now. CPI in focus this week,
AUD: RBA meet on Tuesday, rates expected unchanged though shift US rate-hike expectations may come into play
CAD: BOC surprised markets with a less dovish than expected tone at their last meeting. Unemployment rate in focus 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, increased on the week
  • CHF bullish, decreased on the week
  • AUD bearish, increased on the week
  • CAD bullish, increased on the week

EURUSD Outlook – Bearish

ECB paused as expected, leaving main refinancing rate unchanged at 0.0% and deposit rate at -0.4%. President Mario Draghi left the door open for extension of the stimulus program if needed and commented that “UK should remain in the European Union, because the European Union would benefit from its permanence”, joining BOE in highlighting downside risks of Brexit. June’s macroeconomic projection foresee real GDP to increase 1.6% this year and 1.7% in the next two years, with this year’s forecast revised slightly higher from March forecast. CPI was also revised higher for this year to 0.2% in 2016 (previous 0.1%), but unchanged at 1.3% in 2017 and 1.6% in 2018. EuroZone GDP on Tuesday will be the key domestic data focus.

COT Indicators

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

LFOrder Flow Trader Bullish


GBPUSD Outlook – Bearish

Sterling was pressured over the week on news that the latest Brexit polls show a surge in support for the Vote Leave campaign and a narrowing of the majority with which the Vote Remain campaign hold the lead. On the data front, indicators were mixed with Consumer Credit and Mortgage Approvals weaker than expected in April but Manufacturing PMI ticking up to 50.1 from 49.4 previous to stall the decline in that sector. A slew of UK data comes into focus this week with Trade Balance data the headline set.

COT Indicators

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

LFOrder Flow Trader Bearish


USDJPY Outlook – Bullish

The Japanese Yen rallied over the week boosted by news that the proposed Japanese sales tax increase will be delayed from 2017 until 2019 so as to avoid causing further damage to the weakened Japanese economy. Further support was found on the back of comments made by BOJ member Sato who criticised the bank’s decision to adopt negative rates and urged the BOJ to take a different path in battling deflation. Trade Balance data on Wednesday will be key domestic data focus.

COT Indicators

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

LFOrder Flow Trader Bearish


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. Inflation data on Wednesday will be the key domestic data focus.

COT Indicators

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

LFOrder Flow Trader Bearish


AUDUSD – Outlook Bullish

The Australian Dollar stemmed the tide of recent losses this week, deriving support from a slew of positive data. Domestic Building Approvals and Private Sector Net Credit both printed above expectations in April whilst 1Q GDP was much stronger than expected printing 1.1% vs 0.8% QoQ  and 3.1% vs 2.8% YoY . Chinese data also provided a boost with China Manufacturing PMI beating expectations in May. The RBA meet this week for the June Rate Decision and whilst expectations for a further cut are weakened in the light of AUD appreciation, this sharp unwind in US rate-hike expectations may prompt the bank to move again.

COT Indicators

  • Strength sell signal given
  • Index sell signal given
  • Momentum sell signal ticks down

LFOrder Flow Trader Bullish


USDCAD OutlookBullish

The Canadian Dollar continues to be weighed upon as the prospect of a nearing US rate hike takes its toll. Persistent strength in Oil prices is adding some support however with Oil breaking the $50 this week despite failure by OPEC to agree a production limit. Canadian Unemployment rate will be the key domestic data focus this week.

COT Indicators

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

LFOrder Flow Trader Bullish