Weekly COT Report: GBP Short Squeeze Continues

Trading Themes: A rebound in support for Donald Trump weighed on the US Dollar this week as uncertainty grows ahead of the US elections. Weakness extended into Friday as the latest Non Farm Payrolls report came in weaker than expected at 161k vs 175k expected.  The Unemployment rate stayed steady at 4.9% whilst average hourly earnings were stronger than expected at 2.8% vs 2.6% expected and 2.7% prior. Key focus this week will be the US Elections with markets expecting significant volatility in the event of a Trump presidency.

EUR: Remains firm on back of recent US Dollar weakness and better EZ data
GBP: UK High Court ruling on Brexit vote, alongside less Dovish BOE, fuels GBP rally
JPY: Fluctuating safe-haven demand around the US elections remains key driver
CHF:Unemployment rate is key domestic data focus this week
AUD: RBA remained on hold at recent meeting and noted their comfort with current AUD rate, keeping the currency supported
CAD: Concerns for the health of the proposed OPEC deal have weighed heavily on Oil prices, dragging CAD lower

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 bearish, increased on the week
  • AUD bullish, decreased on the week
  • CAD bullish, increased on the week

EURUSD Outlook – Bearish

The single currency traded higher over the week, taking its cue from a weak US Dollar.  On the data front German unemployment declined by 13,000, beating the forecast of zero. In addition, manufacturing PMI reports were mixed, as the German reading of 55.0 almost matched the forecast, but the Eurozone reading of 53.5 missed expectations. Eurozone employment rate came in at 10%, in line with the forecast.

COT Indicators

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

LFOrder Flow Trader Bullish

eucot

GBPUSD Outlook – Bearish

BOE held interest rates at 0.25% but added about £20 billion of debt to its corporate bond shopping lists. In addition, the central bank said that it will stay pat with its current policy for the rest of the year. Inflation is forecasted to rise to 1.30% in 4Q16 (previous: 1.20%), 2.70% in 4Q17 (previous: 2.00%), 2.70% in 4Q18 (previous: 2.40%) and eases to 2.50% in 4Q19 which was unchanged from previous forecast. Growth was also revised upward in the near term but impact of Brexit is expected to drag growth in 2018. Growth projection was 2.20% this year (previous: 2.00%), 1.40% next year (previous: 0.80%) and 1.50% in 2018 (previous: 1.80%). Data wise, UK’s services PMI increased to 54.5 in October (September: 52.6), climbing to the highest level in nine months.

COT Indicators

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

LFOrder Flow Trader Bullish

gucot

USDJPY Outlook – Bullish

Japan’s gauge of consumer confidence fell from a three-year high reading of 43.0 in September but settled at a healthy print of 42.3 in October. The employment sub-index led the decline in optimism, indicating that more households were more concerned about job market conditions in the near term.

COT Indicators

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

LFOrder Flow Trader Bearish

ujcot

USDCHF Outlook – Bearish

The Swiss Franc has weakened over recent weeks amidst a broadly risk on tone. Focus this week will be on Q2 GDP as well as Inflation data for August. SNB easing expectations have been paired slightly in the wake of the currency’s decline over recent weeks though the central bank is expected to continue to warn against any further strength.

COT Indicators

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

LFOrder Flow Trader Bearish

 uchfcot

AUDUSD – Outlook Bullish

Australia is expected to expand around 2.50- 3.50% by June 2017 and June 2018 but quicken to 3.00- 4.00% by December 2018, according to the freshly released quarterly monetary policy statement. Growth forecast was little changed from the previous forecast except for June 2018, which the central bank forecasted quicker growth of 3.0-4.0%. Inflation is forecasted to rise at the same pace of 1.50%-2.50% in June 2017, June 2018 and December 2018, unchanged from August forecast. On the data front, retail sales climbed 0.60% MOM in September (August: +0.40% MOM), its quickest pace in eleven months.

COT Indicators

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

LFOrder Flow Trader Bullish

 aucot

USDCAD OutlookBullish

The continued sell off in Oil over the week, fuelled by concerns about the health of the proposed OPEC production cut deal, weighed on the Canadian Dollar over the week. Data on Friday showed that the Unemployment rate remained unchanged at 7% in October.

COT Indicators

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

LFOrder Flow Trader Bullish

ucadcot