Weekly COT Report: EUR Shorts Increased Into FOMC Meeting

Trading Themes: A softer week last week for the US Dollar as traders pare positions ahead of the crucial September FOMC rate decision due on Thursday. Uncertainty remains, as still the data continues to disappoint with last Friday’s University Of Michigan confidence survey printing 85 against 91 expected. The CME price only a 24% likelihood of a rate rise at this meeting. However, in support of a rise we’ve heard the Central Bank’s of both Mexico and India calling for the Fed to go ahead and raise rates now, ending the uncertainty which they feel is more damaging.

  • EUR remains trapped by an ECB QE offer and a risk aversion bid, for now the risk version bid has the upper hand but caution counselled ahead of crucial FOMC session
  • GBP renewed optimism regarding the rate lift off for the UK sees GBP supported for now
  • JPY markets start to review the potential for more easing in October from the BOJ sees the JPY on the back foot near term
  • CHF markets sense the SNB will remain in a wait and see mode at this week’s policy meeting, low inflation continues to provide cover for current aggressive policy position
  • CAD widening output cap is the probable catalyst for core inflation to remain depressed, traders will eye this week’s inflation report for confirmation of this view
  • AUD back above the psychological .70 level as the pair benefits from some near term stabilisation in energy markets and a pause in the dramatic decline in Chinese equity markets

Let’s take a look at what the latest COT data is showing us from a trend and net change week over week perspective…

  • EUR bearish, increased on the week
  • GBP bearish, increased on the week
  • CHF bearish, flat on the week
  • JPY bearish, decreased on the week
  • AUD bearish, flat on the week
  • CAD bearish, decreased on the week

EURUSD – Outlook Bearish

Still operating as a function of risk appetite the single currency was stronger last week as global equity markets weakened ahead of this week’s US rate decision. The ECB’s recent policy announcement present a downside risk to any sustained EUR strength and comments from ECB’s Praet last week reiterated the Central Bank’s “willingness and ability to act”.  Uncertainty surrounding the upcoming Greek elections suggests further support for the Euro with further carry-trade unwinding

COT Indicators

  • Strength active sell signal, continues to tick down
  • Index active buy signal, retreats 2015 highs
  • Momentum active buy signal, retesting highs

LFOrder Flow Trader Bullish 

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GBPUSD – Outlook Bearish

Short covering ahead of the August BOE meeting saw GBP sharply higher against USD last week. The meeting passed with rates left unchanged as expected, but a slightly hawkish tone was perceived as the BOE remain supportive of a 2016 rate increase. CPI data this week will be key for traders  especially following last months upside surprise and the BOE’s reaffirmed commitment to their assessment of the UK economy . GBP is still enjoying strongly trending prices against currencies fixed in easing cycles.

COT Indicators

  • Strength active sell signal, continues to tick down from bearish convergence cross
  • Index active sell signal, exit long positions and enter short positions at Friday’s close or better
  • Momentum active buy signal, ticks down towards convergence levels

LFOrder Flow Trader Bullish

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USDJPY – Outlook Bullish

The Japanese currency took a step back last week as the peak of safe-haven driven demand seems to have passed for now. Japanese PM Shinzo Abe’s return to office for another 3 years saw the Nikkei soar by over 1000 points midweek prompting further JPY weakness. USDJPY currently trading above the 120 handle as speculations are renewed that the BOJ could move to ease policy further at its October meeting. This followed from the comments by a PM Abe advisor and ruling party lawmaker on Thursday that the BOJ should act to meet its 2% inflation target.

COT Indicators

  • Strength active buy signal, continues to tick down towards convergence level
  • Index active sell signal, continues to tick down from bearish convergence cross
  • Momentum active sell signal, ticks down from bearish convergence cross confirming the signal

LFOrder Flow Trader Bullish

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USDCHF – Outlook Bullish

The CHF has been under pressure of late, mainly on the back of stabilising risk sentiment. This is mainly due to stabilising China related growth expectations. Next week’s main focus will be on the SNB monetary policy announcement. Given low inflation risk the central bank remains in a position to keep an aggressive monetary policy stance. This is especially true as the overvalued franc is keeping monetary conditions tight, regardless of somewhat more stable growth conditions.

COT Indicators

  • Strength active buy signal, continues to tick down
  • Index active buy signal, continues to tick down
  • Momentum active buy signal, continues to tick down

LFOrder Flow Trader Bearish 

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AUDUSD – Outlook Bearish

Recovered some territory last week against broad US Dollar weakness and the prospect of Chinese stimulus. Commodity markets and disinflationary pressure stemming from the China slowdown continue to weigh. The Fed’s decision on Thursday will have a key impact on the Aussie’s trading outlook in the near term.

COT Indicators

  • Strength active sell signal, continues to tick up from recent lows
  • Index active sell signal, continues to tick up from recent lows
  • Momentum active buy signal, continues to tick up

LFOrder Flow Trader Bullish

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USDCAD Outlook – Bullish

Oil prices remained range-bound last week keeping the Canadian Dollar similarly hemmed in against it’s main counterparts. The BOC kept rates unchanged at this month’s meeting stating that “Movements in the Canadian dollar are helping to absorb some of the impact of lower commodity prices and are facilitating the adjustments taking place in Canada’s economy”. The Central Bank added that current risks to the inflation outlook remain within the parameters for which the currently monetary policy is appropriate.Friday’s CPI data will provide key insight into the Canadian economy and traders will be watching for signs of further damage

COT Indicators

  • Strength active buy signal, continues  retreat from recent highs
  • Index active  buy signal, continues retreat from recent highs
  • Momentum sell signal,continues to tick down confirming bearish cross signal

LFOrder Flow Trader Bullish

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