Weekly COT Report: Sterling Bears Load Bets Ahead OF BOE

Trading Themes: USD was sharply lower last week as initial strength was abandoned in the wake of the markets swift reaction to the ECB’s further measures announced on Thursday. Losses were stemmed on Friday however as the November NFP’s came in just above expectations with the Unemployment rate remaining at 5%, keeping the Fed on course to raise rates at its upcoming monetary policy meeting on December 16th. CME Group now price a 79% probability of lift-off in December.

  • EUR: Draghi fails to impress dovish expectations causing vicious Euro short squeeze
  • GBP: Trades higher amidst broad USD weakness, BOE rate decision eyed this week
  • JPY: Trades offered with bullish risk sentiment, likely range trade ahead of next week’s Tankan survey
  • CHF: Expectations for SNB rate cut are dialed back after ECB disappoints
  • CAD: Domestic employment data remains weak in divergence with the robust US prints
  • AUD: Has remained supported amidst general USD long profit taking, domestic employment data eyed Thursday

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, increased on the week
  • JPY bearish, decreased on the week
  • AUD bearish, decreased on the week
  • CAD bearish, increased on the week

EURUSD – Outlook Bearish

The single currency was seen sharply higher in response to the ECB’s apparently disappointing course of action. The ECB cut rates in line with the expected 10bps reduction and although QE was extended (now set to run until at least March 2017) the stimulus program was not increased at this stage. Players who had been heavily short the Euro into the event, took profits on positions seeing a large spike in EUR.

COT Indicators

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

LFOrder Flow Trader Bearisheu1

GBPUSD – Outlook Bearish

Recent data flow for Sterling has been mixed; Net Consumer Credit, Manufacturing & Construction PMI data all missed before Services PMI data came in above expectations to stem losses on the week. Traders now await the BOE this week, with the BOE expected to continue their recent Dovish tone.

COT Indicators

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

LFOrder Flow Trader BullishGU1

USDJPY – Outlook Bullish

Despite slightly weaker Manufacturing PMI data the Japanese Yen was boosted by an impressive Q3 Capex release, growing at the fastest pace in July-September YoY for over 8 years, which suggests a possible upward revision to the recent weak Q3 GDP print.

COT Indicators

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

LFOrder Flow Trader Bullishuj1

USDCHF – Outlook Bullish

The focus has shifted to the SNB meeting this week and the FOMC meeting next week, with the ECB failing to deliver on the Dovish market expectations and the subsequent bounce in the Euro is likely to remove pressure on the SNB to cut rates at this meeting.

COT Indicators

  • Strength active buy signal, ticks up
  • Index active buy signal, consolidates at highs
  • Momentum active buy signal, consolidates at highs

LFOrder Flow Trader Bearishuchf1

AUDUSD – Outlook Bearish

The recent bullish momentum behind the Aussie continued again last week. The RBA held rates unchanged as expected and were optimistic in their economic outlook, noting the strong growth in jobs and overall economic resilience in the face of global headwinds. Governor Stevens’ optimism was tempered by the caveat that there remains scope for further easing if necessary, but currently momentum favours further upside in the Aussie. Traders now look ahead to domestic Unemployment data this week for further endorsement of the Australian labour force expansion.

COT Indicators

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

LFOrder Flow Trader BullishAU1

USDCAD OutlookBullish

The Canadian Dollar managed to stem recent losses against the Dollar last week recovering amidst US data weakness. The mid-week USD spike was contained by weak US GDP though ultimately CAD itself was contained on Friday by the release of weaker than expected domestic GDP. Domestic focus this week will be on the release of Canadian unemployment on Friday

COT Indicators

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

LFOrder Flow Trader Bearishucad1