Weekly COT Report: Euro Shorts Continue To Build

Trading Themes: Despite a mildly positive tone to the July FOMC statement which saw the Fed citing diminished near term economic risks, USD weakened as the Fed stopped short of giving markets a timing signal for rate hike instead reiterating that they feel only very gradual increases in the fed funds rate will be appropriate and that the rate is likely to stay at low levels for a long time. Data put further pressure on USD as durable goods orders extended their declines and pending home sales rose less than forecasted in June. Durable goods orders tumbled 4.0% MOM in June amid a sharp decline in capital goods orders and showed lacklustre investment that will remain a drag on 2Q growth with US manufacturing and jobless claims also taking a turn for the worse. On Friday both Personal Consumption and GDP printed below expectations. Key focus this week falls on the July employment reports due on Friday with USD bulls looking for further upside momentum.

EUR: ECB pause, subsequent positive EZ data and lack of Fed timing signal keeps EUR supported
GBP: Traders await BoE. Market pricing in 25bps cut – risk of more.
JPY: BOJ disappoints markets with lacklustre policy announcement. Investors await details of Japanese Fiscal Stimulus package.
CHF: Swiss Franc driven higher on USD weakness and safe haven demand
AUD: Low domestic inflation keeps pressure on RBA ahead of this month’s meeting on Tuesday
CAD: Growing supply demand imbalances in the Oil market threaten the Canadian Dollar – Unemployment rate on Friday key domestic data focus.

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

EURUSD Outlook – Bearish

A slew of confidence indicators staged surprised upticks in July, signalling immediate impact from Brexit may be more contained although longer run downside risks remain valid. Economic confidence index was up 0.2 point to 104.6 this month while business climate indicator edged 0.17 point higher to 0.39. July EuroZone CPI Estimates came in stronger than expected on both headline and core readings at 0.2% vs 0.1% and 0.9% vs 0.8% respectively whilst EuroZone Q2 GDP also beat expectations to print 1.6% vs 1.5%. This positive data further reduces the likelihood of near term ECB easing.

COT Indicators

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

LFOrder Flow Trader Bullish

eucot

GBPUSD Outlook – Bearish

The UK economy grew more than expected before Brexit but may mark a directional turn from stable growth as the vote last month delivered an immediate blow to business and consumer sentiment. The country expanded 0.6% QoQ in 2Q which was quicker than the 0.40% QoQ pace in 1Q as industrial production registered its biggest increase since 1999. UK’s average house prices climbed 5.2% YOY to £ 205.7k in July (June: +5.1% YOY) according to Nationwide Building society but momentum in Britain’s property market may slow after Brexit. Despite low mortgage rates and housing supply shortages, a turn in homebuyer’s sentiment weighed down by Brexit could soften demand for homes in the near term. Focus this week will be on the August BOE meeting with markets keenly waiting to see which course of action the BOE chooses to take.

COT Indicators

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

LFOrder Flow Trader Bullish

gucot

USDJPY Outlook – Bullish

BOJ severely disappointed highly expectant markets with their lacklustre policy adjustment in July which saw rates kept on hold at -0.1% and monetary base left unchanged at Y80trln. An increase in ETF purchases from Y3.3trln to Y6trln did little to reassure markets and saw JPY rallying in response. Japan’s Prime Minister Shinzo Abe said that the government will roll out stimulus package worth 28 trillion yen ($ 265.3 billion) which include 13 trillion yen in “fiscal stimulus” comprises of spending by national and local governments as well as loan programs.

COT Indicators

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

LFOrder Flow Trader Bearish

ujcot 

USDCHF Outlook – Bearish

Swiss Franc was sharply stronger in the wake of the July FOMC meeting which, although saw the fed striking a more upbeat tone about the economy, failed to give traders a timing signal for a potential rates move. This fresh CHF strength will be keenly watched by the SNB who, following Brexit, commented that they did infact intervene in the market to “stabilize the situation and will remain active in the market” to offset CHF buying.

COT Indicators

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

LFOrder Flow Trader Bearish

uchfcot

AUDUSD – Outlook Bullish

Consumer prices rose at the slowest annual pace since 1999 last quarter while core inflation kept at a record low of 1.5%, well under the Reserve Bank of Australia’s (RBA) target band of 2 to 3% and thus keeping pressure on the RBA ahead of their meeting next week with traders expecting that the low inflation could prompt the central bank to cut interest rates once more when they meeting for their August meeting this week.

COT Indicators

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

LFOrder Flow Trader Bullish

aucot 

USDCAD OutlookBearish

The Canadian Dollar was pressured over the week as growing over-supply concerns pushed Oil prices down to a new 3 month low.An increasing amount of banks and analysts are slashing their Oil forecasts for the year in line with expectations for diminished demand. Domestic GDP data on Friday printed 1% YoY vs expectations of 1.2% putting further pressure on the currency. Traders now turn to domestic Unemployment Rate data on Friday.

COT Indicators

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

LFOrder Flow Trader Bearish

ucadcot