Weekly COT Report: EUR & JPY Under Growing Pressure

Trading Themes: USD longs have been increasing over recent weeks taking them back up to high levels last seen around August. Speculation over a December rate hike continues to grow leaving USD open to a squeeze in positioning on any disappointment from the upcoming FOMC minutes release. Retail sales on Friday came in at 0.1%, below expectations of 0.3% however Michigan consumer confidence came in above expectations to print 93.1 vs 91.5 expected. Attention this week will be on the minutes release from the October FOMC meeting where the Fed signaled that a December lift-off is very much a possibility.

  • EUR: Low inflation to be confirmed, renewed focus on further easing in December
  • GBP: Mixed messaging keeps market guessing about UK rate move                                                                                                   
  • JPY: Returns to a technical recession in Q3
  • CHF: Negative deposit rates to lead to further CHF weakness
  • CAD: New government promise further fiscal stimulus
  • AUD: Meeting minutes to be closely 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 neutral, flat on the week
  • CHF bearish, increased on the week
  • JPY bearish, increased on the week
  • AUD bearish, flat on the week
  • CAD bearish, flat on the week

EURUSD – Outlook Bearish

The single currency was able to stem the losses of recent weeks, remaining range bound at lows last week as the US Dollar paused in its ascent. Comments from Mario Draghi confirmed the weakening of inflation dynamics and the need for the ECB to reassess its monetary policy at their December meeting.

COT Indicators

  • Strength active sell signal, consolidates at last week’s lower level
  • Index active sell signal, bearish sell signal confirmed with move lower from convergence
  • Momentum active sell signal, exit long positions and enter short positions at Friday’s close or better

LFOrder Flow Trader Bullisheu1

GBPUSD – Outlook Bearish

Sterling was able to sustain a rebound last week, retracing some of its recent losses, as the latest unemployment data showed yet a further decline with the rate falling to 5.3%, moving deeper into territory not seen since 2008. Average weekly earnings however grew less than expected, stalling at 3%. Focus this week will be on domestic CPI this week following the recent negative print last month which was followed by a very Dovish Bank of England meeting

COT Indicators

  • Strength active sell signal, consolidate after bearish convergence cross
  • Index active buy signal, consolidates at last week’s lower level
  • Momentum active buy signal, ticks up

LFOrder Flow Trader BullishGU1

USDJPY – Outlook Bullish

The Japanese Yen was able to regain some of its recent losses last week, benefiting from a softer US Dollar. BOJ board member Harada commented last week that the BOJ doesn’t need to ease currently as the effects on the Japanese economy from low oil prices will eventually dissipate. However, Domestic GDP data has confirmed that Japan has fallen into technical recession for the second time since Prime Minister Abe took power.

COT Indicators

  • Strength active buy signal, consolidates recent gains
  • Index active sell signal, consolidates recent gains
  • Momentum active buy signal, ticks higher

LFOrder Flow Trader Bearishuj1

USDCHF – Outlook Bullish

Due to the expected ECB deposit rate cut in December and the removal of all exemptions on domestic bank sight deposits, investors believe the negative rates on retail deposits will lead to substantial Swiss Franc weakness

COT Indicators

  • Strength active buy signal, consolidates gains
  • Index active buy signal, consolidates gains
  • Momentum active buy signal, consolidates gains

LFOrder Flow Trader Bearishuchf1

AUDUSD – Outlook Bearish

Despite softer commodity prices, seen in reaction to yet more data weakness out of China, the Australian Dollar was boosted as the latest employment data showed Australian unemployment to have unexpectedly contracted in October, printing 5.9% against 6.2% expected. Australian unemployment has been steadily decreasing from its summer highs, an encouraging sign for those who feel the RBA will refrain from further easing this year. The Aussie’s trading outlook this week will be driven Chinese data and the US FOMC minutes release.

COT Indicators

  • Strength active sell signal, ticks up
  • Index active sell signal, consolidates at last week’s lows
  • Momentum active sell signal, consolidates at lower levels

LFOrder Flow Trader BullishAU1

USDCAD OutlookBullish

The Canadian Dollar was led lower last week following the latest monthly report from OPEC which noted that Saudi Arabia, the world’s largest exporter of oil, had increased supply by 50k barrels in October. Oil extended losses from last week making its way back under the $42.54 October lows back to $40 per barrel.

COT Indicators

  • Strength active buy signal, consolidates last week’s gains
  • Index active sell signal, ticks up
  • Momentum buy signal, consolidates last week’s up tick

LFOrder Flow Trader Bearishucad1