Weekly COT Report: Bulls Increase Bets On JPY

Trading Themes: The USD extended gains last week, following on from an impressive December NFP print. In the absence of much key data, main focus was on a raft of Fed communication with several members speaking throughout the week. Fed’s Evans. Despite more Dovish output from Fed’s Lockhart & Evans who commented that concerns around inflation and the economy mean that the Fed should follow an “even shallower path” than currently projected, with only two – three rate hikes this year rather than four, Fed’s Kaplan & Lacker were more optimistic, dismissing the likely impact of Chinese volatility on US fundamentals and endorsing the proposed our further rate increases projected for 2016. On Friday soft Retail Sales saw USD retracing some of its gains on the week. Key data focus this week is CPI on Wednesday.

  • EUR: Dovish rhetoric from ECB members weighs on the EUR ahead of Thursdays ECB meeting and press conference
  • GBP: BoE on the sidelines, rate hike expectations pushed out as declines in wage growth and low inflation weigh
  • JPY: Continues to take its lead from risk sentiment, JPY benefiting from safe haven flows
  • CHF: Overvalued domestic currency continues to weigh on beleaguered Swiss economy, while SNB maintain negative interest rates
  • CAD: Crude crash the catalyst for CAD to continue to print fresh 12 year lows
  • AUD: With no domestic data of note this week, AUD to take its lead from Tuesday’s China GDP print

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

EURUSD – Outlook Bearish

The continued risk-averse tone with which early 2016 is unfolding continues to support the single currency which, through its inverse correlation with risk, is seeing decent demand as equity markets extend losses amidst deepening global growth concerns. The ECB December Meeting minutes release showed that the decision to enact further easing was a close call. Some members were more optimistic about the health of the EuroZone economy, believing that further easing would have negative effects, whilst some members actually wanted to initiate further easing. The release illuminated the deep rift within the ECB, dampening expectations of further easing in the months to come. Key focus this week is on EZ CPI and the ECB rate decision.

COT Indicators

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

LFOrder Flow Trader Bearish 1EU

GBPUSD – Outlook Bearish

Sterling was driven sharply lower last week as the latest Industrial and Manufacturing data both printed far below expectations, compounding the heavy investor sentiment on GBP currently as UK rate-hike expectations continue to unwind. The Bank Of England noted on Thursday that inflation is likely to be lower than first thought due to the continued declines in Oil prices with GDP forecast to also have grown slower than expected in Q4 2015 and Q1 2016. The BOE also noted disappointingly low productivity, wage and credit growth alongside the damage that “Brexit” concerns are wreaking on Sterling. Key data focus is on UK CPI on Tuesday followed by Unemployment and earnings data on Wednesday.

COT Indicators

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

LFOrder Flow Trader Bearish1GU

USDJPY – Outlook Bullish

Despite some better than expected Chinese trade figures mid-week, risk sentiment remained dampened last week as more rounds of selling in Chinese equities have translated into global equity market losses.  The Bank of Japan governor Kuroda said that Japanese inflation is improving in a steady manner due to a strengthening domestic labour market. He also underlined that the current easing monetary policy will succeed in the near future though the BOJ is only halfway to its two percent inflation target. Traders will be keeping a close eye on any continued strength in the Japanese Yen as it will likely see BOJ commentary take a more Dovish turn.

COT Indicators

  • Strength active sell signal, bearish sell signal, enter shorts at Friday’s close or better
  • Index active sell signal, consolidates at lows
  • Momentum active sell signal, ticks up

LFOrder Flow Trader Bullish1UJ

USDCHF – Outlook Bullish

Switzerland’s biggest trade union urged the country’s top central bankers to resign yesterday, blaming them of ruining the export-dependent economy by abandoning the cap on the Swiss franc against the euro a year ago. The CHF soared as much as 30 percent against the Euro on 15 January 2015, but the SNB’s negative interest rate policy and intervention on currency markets helped to stabilize the USDCHF.

COT Indicators

  • Strength active buy signal, ticks down
  • Index active sell signal, ticks down
  • Momentum active sell signal, bearish sell signal enter shorts at Friday’s close or better

LFOrder Flow Trader Bullish1UC

AUDUSD – Outlook Bearish

The Australian Dollar continued lower last week in line with further Oil price declines and general risk-off sentiment. Australian Unemployment, which is improving reliably, declined further to 5.2% this week, but despite this encouraging domestic development, concerns for China and global-growth continue to keep the Aussie under pressure.

COT Indicators

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

LFOrder Flow Trader Bearish 1AU

USDCAD OutlookBullish

The Canadian Dollar dropped to a fresh 12-year low against USD last week, pressured by the continuing fall in crude oil prices and evidence that Canadian business sentiment deteriorated. The combination of negative factors may add pressure on the Bank of Canada to take further action after they cut interest rates twice in 2015. Traders will be paying close attention to the BOC rate decision on Wednesday. The Bank of Canada’s quarterly Business Outlook Survey reported that the negative effects of lower oil and commodity prices caused business sentiment to deteriorate over the last three months.

COT Indicators

  • Strength active buy signal, ticks up
  • Index active buy signal, ticks down
  • Momentum sell signal, bearish sell signal, enter shorts at Friday’s close or better

LFOrder Flow Trader Bullish1UCAD