Weekly COT Report: EUR Bears Piling On The Pressure

Trading Themes: USD approaching 2015 highs amidst the risk-on response to the Hawkish FOMC minutes as anticipation builds for a December rate lift off. With rate holding around post-October NFP highs, bullish outlook remains intact.

• EUR: Draghi issues green light for additional easing measures at the December meeting
• GBP: FX traders will parse the autumn fiscal statement, eyeing revisions to the path of fiscal consolidation
• JPY: Data regarding inflation and labour markets will be eyed for insight to the technical recession development
• CHF: SNB Maechler echoes SNB head Jordan’s concerns regarding the strength of the Franc
• CAD: Oil the principle driver of price action currently
• AUD: Important business investment data released this week, mining and non -mining capex eyed

Let’s take a look at what the latest COT 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
• CHF bearish, increased on the week
• JPY bearish, increased on the week
• AUD bearish, increased on the week
• CAD bearish, increased on the week

EURUSD – Outlook Bearish

The single currency sustained a slight rebound last week with the latest CPI data showing EuroZone inflation managed to climb back into positive territory in October. However, price eventually turned lower once more as the policy divergence between the ECB and Fed which drove price action at the start of the year looks now to be firmly back in place as run-down the year. Draghi commented that the ECB remain on course to do whatever is necessary to “raise inflation as quickly as possible”.

COT Indicators

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

LFOrder Flow Trader Bearisheu1http://product.datastream.com/dscharting/gateway.aspx?guid=d5bfc537-263c-4022-8e2f-bc9332f8e4c5&chartname=CFTC%20-%20CME%20-%20Euro%20-%20NonCommercial&groupname=Euro&date=20120528&owner=ZRTN274&action=REFRESH

GBPUSD – Outlook Bearish

Sterling delivered a second consecutive positive week last week as the latest CPI figures showed that although headline inflation was down again in October (printing only the second consecutive negative reading since the index’s creation in 1997) core inflation, which the Bank Of England favours, actually surpassed expectations by 0.1%. Retail sales missed however printing 3% against expectations of 5.9% followed by Public Sector Net Borrowing which decreased but less than expected, leading GBP lower against the Dollar. GDP data is key domestic focus this week 2.3% previous

COT Indicators

• Strength active sell signal, ticks down
• Index active sell signal, ticks down (Signal update delayed by US Federal Holiday delaying data release to 16/11)
• Momentum active sell signal, ticks down (Signal update delayed by US Federal Holiday delaying data release to 16/11)

LFOrder Flow Trader BullishGU1http://product.datastream.com/dscharting/gateway.aspx?guid=a931eb8d-cc5c-4bab-8e93-7cf04f31d8ba&chartname=CFTC%20-%20CME%20-%20Sterling%20-%20NonCommercial&groupname=Sterling&date=20120528&owner=ZRTN274&action=REFRESH

USDJPY – Outlook Bullish

The BOJ maintained their current monetary base growth target at 80 trln Yen last week and despite noting some developing weakness in inflation expectations, recommitted to its current easing program stating that the program was having the intended effects. The BOJ’ refrain from further action saw a sudden appreciation in the Yen as the Nikkei too reacted higher. Data last week showed that once again Japan had slipped into a technical recession with 3Q GDP printing -0.8%. Key focus this week will be on CPI as traders monitor the state of Japan’s inflation and also BOJ meeting minutes.

COT Indicators

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

LFOrder Flow Trader Bullishuj1http://product.datastream.com/dscharting/gateway.aspx?guid=cf624b67-6853-46b0-b905-3a8089ab93c0&chartname=CFTC%20-%20CME%20-%20Japan%20Yen%20-%20NonCommercial&groupname=Yen&date=20120528&owner=ZRTN274&action=REFRESH

USDCHF – Outlook Bullish

Following SNB Board Member Andrea Maechler’s speech in regards to the overvalued Swiss franc, SNB Chairman Thomas Jordan continued to talk down the franc and stated the central bank’s commitment to further weakening the currency. With ECB chief Draghi implying further loosening in monetary policy at the upcoming meeting held on 3 December, markets generally expect SNB to follow ECB’s footsteps, which might drive USDCHF further up.

COT Indicators

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

LFOrder Flow Trader Bullishuchf1http://product.datastream.com/dscharting/gateway.aspx?guid=7b2e8494-6e81-4128-b3f1-511602c07d13&chartname=CFTC%20-%20CME%20-%20Swiss%20franc%20-%20NonCommercial&groupname=Swiss&date=20120528&owner=ZRTN274&action=REFRESH

AUDUSD – Outlook Bearish

Australian Dollar printed a second consecutive positive week last week as the RBA meeting minutes revealed the Central Bank to be sounding more optimistic about domestic economic developments which fuelled further upside in the Antipodean currency, extending strength seen from last week’s surprise decline in domestic unemployment. Commodity prices remain weak with global growth concerns still present which should act to keep Aussie upside in check. Lack of key domestic data this week will leave Aussie’s trading outlook driven by risk and USD flows.

COT Indicators

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

LFOrder Flow Trader BullishAU1http://product.datastream.com/dscharting/gateway.aspx?guid=2d8ff62b-6d11-426e-923a-252c060a1d05&chartname=CFTC%20-%20CME%20-%20Australian%20-%20NonCommercial&groupname=AUD%20CAD%20NZD&date=20120528&owner=ZRTN274&action=REFRESH

USDCAD Outlook – Bullish

The Canadian Dollar was able to regain some of its recent losses last week as Oil managed to sustain a brief correction this week travelling north from a low of $40 to just shy of $43 per barrel on the week. Canadian CPI in October came in as expected though with a slight beat in core at 2.1% vs expectations of 2%.

COT Indicators

• Strength active buy signal, ticks up
• Index active buy signal, exit short positions and enter long at Friday’s close or better
• Momentum buy signal, ticks up

LFOrder Flow Trader Bearishucad1http://product.datastream.com/dscharting/gateway.aspx?guid=64fd04d6-9130-4a91-90e6-6d9863ef7a2c&chartname=CFTC%20-%20CME%20-%20Canadian%20%24%20-%20NonCommercial&groupname=AUD%20CAD%20NZD&date=20120528&owner=ZRTN274&action=REFRESH