Weekly COT Report: JPY Bulls Abandon Ship

Trading Themes: The US Dollar received a significant boost mid-week in response to the ECB;s announcement that it will extend its asset purchase programme beyond March 2017 to December 2017 at the earliest. Traders now look ahead to the December FOMC meeting which is widely expected to see the Fed raise rates. With so much priced in, key to the market’s reaction will be how the Fed signal the rate path over 2017/2018.

EUR: ECB extension of stimulus weighs on EUR
GBP: Continues to be driven by Brexit headlines – CPI on watch this week
JPY: BOJ’s yield curve control programme continues to keep JPY pressured
CHF: Swiss Franc weighed on lack of safe haven demand
AUD: Poor GDP print keeps easing expectations alive, Unemployment on watch this week
CAD: Surge in Oil prices following agreement between OPEC & Non OPEC countries keeps CAD supported

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

EURUSD Outlook – Bearish

ECB news flow dominated the headlines last week; the central bank kept interest rate and asset purchase target unchanged, but extended the duration of asset purchase up until Dec 2017 with reduction in purchases to €60bn starting April 2017. ECB President Draghi insisted that purchase reduction is not tapering, and that tapering means “cutting purchases down to zero”, likely implying that there is currently no plans to reduce asset purchases to zero any time soon. USD was boosted by outflow from European majors to beat 80% of its G10 FX peers as ECB pulled a dovish surprise.

COT Indicators

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

LFOrder Flow Trader Bearish

GBPUSD Outlook – Bearish

Sterling was led lower last week as a parliamentary vote approved the Government’s plan to trigger Article 50 by end-March 2017. German Vice Chancellor Sigmar Gabriel said Brexit is taking “far too long” and maintaining the UK’s ties to the European Union won’t be easy. Gabriel signalled concern that extended uncertainty implied by UK Prime Minister Theresa May’s timeline for starting Britain’s exit from the EU by the end of March might cause economic damage

COT Indicators

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

LFOrder Flow Trader Bearish

USDJPY Outlook – Bullish

The Japanese Yen remains under pressure as the BOJ’s yield curve control policy continues to keep JGB yields capped amidst an environment of rising global yields which sees investors turning away from the country.  Buoyant risk appetite has also exerted downward pressure from the Yen which typically benefits from periods of risk off trading due to its status as a safe haven

COT Indicators

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

LFOrder Flow Trader Bullish

USDCHF Outlook – Bullish

The Swiss Franc has weakened over recent weeks amidst a broadly risk on tone. Focus this week will be on the SNB’s 3 month Libor setting. 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 up
  • Momentum signal flat, await new signal

LFOrder Flow Trader Bullish

 

AUDUSD – Outlook Bullish

The RBA held rates unchanged at their December meeting pointing to two previous rate cuts earlier in the year. The bank noted that labour market indicators continue to be somewhat mixed.  Australia’s GDP contracted in 3Q, falling 0.5% QOQ after growing 0.6% previously. This was worse than market estimates of a soft 0.1% decline, and could worse further in 4Q, reigniting market outlook of an interest rate cut going forward. Contraction in Australia’s construction sector slowed in Nov as the AiG index rose to 46.6 from 45.9 in October

COT Indicators

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

LFOrder Flow Trader Bullish

 

USDCAD OutlookBullish

The BOC kept rates unchanged at their December meeting noting firmer yet uncertain global economy. CAD was leant support over the week from Oil prices which gained in response to confirmation by OPEC that members have agreed a production cut deal. Further support for the Canadian Dollar comes as Traders believe that US economic stimulus will boost Canada’s exports, which offset the threat of protectionism suggested by Donald Trump.

COT Indicators

  • Strength buy signal ticks up
  • Index active buy signal consolidates
  • Momentum signal flat, await new signal

LFOrder Flow Trader Bullish