Weekly COT Report: Sterling Shorts Reload

Trading Themes: Consensus suggests Candidate Clinton got the better of the first of the three debates. Continuous downbeat US headline data added to the retreat in risk yesterday. New home sales fell 7.6% MOM in August, pulling back from the 9-year high level in July while Dallas Fed showed manufacturing activities remained mired in negative territory although the pace of contraction was notably smaller. USD fell against 90% of G10FX amid dismal US data that continued to impose a soft outlook on the Fed’s policy normalisation path. Focus this week will be on the US employment reports with USD bulls looking for a strong number to get them back in the game.

EUR: An absence of key data this week, Deutsche Bank concerns remain focus
GBP: September PMI data sets in focus
JPY: Safe haven demand keeps Yen supported
CHF: Concerns for European banking sector keep Swiss Franc supported.
AUD: RBA in focus this week though not expected to cut at this juncture
CAD: Scepticism regarding the proposed OPEC deal saw some pullback in Oil which has weakened CAD at the start of the 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, decreased on the week
  • GBP bearish, increased on the week
  • JPY bullish, increased on the week
  • CHF bearish, increased on the week
  • AUD bullish, increased on the week
  • CAD bearish, increased on the week

EURUSD Outlook – Bearish

EuroZone Core CPI was lower than expected in September printing 0.8% vs 0.9% expected whilst the headline reading printed in line at 0.4%. Earlier in the week saw the release of the September German IFO index, which rose sharply to 109.5 from a revised 106.3, originally reported as 106.2. The consensus was for a more modest advance to 106.5 for the month and the sharp recovery from last month’s notably weak reading will help improve confidence after a run of generally disappointing German data. A lack of key data this week should see UER driven mainly by USD flows and developments regarding the Deutsche Bank situation.

COT Indicators

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

LFOrder Flow Trader Bullish

eucot

GBPUSD Outlook – Bearish

BoE Deputy Governor Minouche Shafik said that more easing will probably be needed after the “sizeable economic shock” of the Brexit vote. Bank of England Governor Mark Carney said that BoE has looked to provide support to the economy to help with adjustment, both in terms of improving ability of banks to lend and improving cost of borrowing. According to British Banker’s Association, the number of home loans fell to 37k in August (July: 37.7k), posting signs that Brexit fallout may reflect on economic data sooner than anticipated after the initial shock. Services and manufacturing PMI suggested that some part of the economy rebounded sharply last month after the initial jolt from Britain’s vote to leave EU in July. That provided some reprieve and eased concerns of a drastic deceleration in growth due to Brexit in the short term. Traders will be looking at a raft of PMI data sets this week to see if positive momentum post-Brexit has continued or stalled.

COT Indicators

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

LFOrder Flow Trader Bearish

gucot

USDJPY Outlook – Bullish

Bank of Japan policymakers fretted over weak inflation expectations and uncertain prospects for achieving its price goal even before announcing its plan to conduct in September a comprehensive review of its policies, according to minutes of the central bank’s policy meeting released this week. Data showed that the Japanese retail industry remains in the doldrums, painting a picture of subdued household consumption in August. Retail sales dropped 2.1% from a year ago, marking its sixth straight contraction.

COT Indicators

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

LFOrder Flow Trader Bullish

ujcot

USDCHF Outlook – Bearish

Concerns for the European banking sector continue to drive CHF safe-haven demand as the risk off mood grows. The SNB kept rates on hold at their September policy meeting though did note that the Swiss Franc is still “significantly overvalued”. The SNB also noted that “The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market are intended to make Swiss franc investments less attractive, thereby easing upward pressure on the currency.”

COT Indicators

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

LFOrder Flow Trader Bullish

uchfcot

AUDUSD – Outlook Bullish

The Australian Dollar has been benefiting from a wave of risk on trade in reaction to the US presidential debate. Still, with the outcome of the presidential race many weeks away and with the more pressing issue of extended monetary policy a major concern, there is the possibility the rally runs into resistance rather quickly. The RBA meet this week though traders are not expecting the bank to cut further at this stage.

COT Indicators

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

LFOrder Flow Trader Bullish

aucot

USDCAD OutlookBearish

The Bank of Canada was more inclined to ease monetary policy than tighten it was revived after figures showed Canada’s annual inflation rate in August dipped to a 10-month low and retail sales unexpectedly fell in July. The Canadian Dollar was boosted midweek on Oil strength in response to the OPEC meeting. On the data front CPI for July came in stronger than expected at 1.3% vs 1.% expected. Unemployment rate is the key domestic data focus this week.

COT Indicators

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

LFOrder Flow Trader Bearish

ucadcot