Weekly COT Report: Sterling Bears Loading Up

Trading Themes: The Dollar was slightly lower last week, recovering initial heavy losses as a Dovish Fed confirmed the views of many players who were already pushing out subsequent rate-hike expectations. The Fed’s concern regarding the threat to the US inflation and growth outlook from global financial developments and continued energy price declines has USD upside capped for now. US GDP on Friday printed in line with expectations whilst Q3 Personal Consumption printed above expectations. Key data focus this week will be the employment reports on Friday with USD bulls hoping to see a continuation of recent positive momentum in labour conditions.

  • EUR: ECB rhetoric the focus in a quiet data week
  • GBP: BoE Inflation Report and minutes will be the focus on Thursday
  • JPY: BOJ negative rate move shocks markets
  • CHF: Recent CHF deprecation fuels expectations SNB FX intervention
  • CAD: Crude bounce and the BOC on hold supports CAD
  • AUD: RBA likely on hold this week, with inflation at the lower bound of the target band

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

EURUSD – Outlook Bearish

Despite sharp month-end selling erasing most its gains, EURUSD was higher last week driven in part by equity market weakness, spurred by further Oil price declines in the early part of the week, and finally by USD weakness in the wake of the Dovish January FOMC. EuroZone January CPI printed in line with expectations with a small beat on core inflation. Light domestic data slate this week with German & EZ Unemployment the key focus.

COT Indicators

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

LFOrder Flow Trader Bullisheucot1

GBPUSD – Outlook Bearish

Sterling was able to reclaim higher ground last week, making a break above the key 1.4350 resistance level driven by a recovery in Oil prices, US Dollar weakness and Q4 GDP printing in-line with expectations, allaying fears that growth had slowed more than expected in the end of last year. However gains were sharply reversed as month end flows saw heavy GBP selling. All attention will be on the BOE’s “Super Thursday” this week as they release their updated inflation report

COT Indicators

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

LFOrder Flow Trader Bearishgucot

USDJPY – Outlook Bullish

The Bank of Japan shocked markets on the final trading day of January as they announced a move into negative interest rates, a move which in the words of BOJ Governor Kuroda is intended to “show people that the BOJ is strongly committed to achieving 2 percent inflation and that it will do whatever it takes to achieve it”. Despite noting the continued recovery for the Japanese economy Kuroda explained that the move is intended to combat the risks posed from the “recent further falls in oil prices, uncertainty over emerging economies, including China and global market instability”. An absence of key domestic data will leave JPY driven by USD and risk flows.

COT Indicators

  • Strength active sell signal, ticks down
  • Index active sell signal, consolidates at lows
  • Momentum active sell signal, ticks down

LFOrder Flow Trader Bullishgucot

USDCHF – Outlook Bullish

Improved risk sentiment and increased market expectations for additional stimulus by several central banks, including the SNB, have weighed on the CHF recently. Indeed, we expect this trend to continue as the CHF further corrects its over valuation. The recent CHF depreciation has fueled expectations of increased SNB FX interventions since December. In that respect, the SNB’s FX reserves (Friday) will be closely followed

COT Indicators

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

LFOrder Flow Trader Bearishuchfcot

AUDUSD – Outlook Bearish

The Australian Dollar sustained a recovery last week, with positive surprises on the domestic data front coming from better-than-expected CPI data which showed that inflation ticked up in the fourth quarter. Gains were extended in the latter half of the week as a Dovish FOMC meeting saw players pricing out expectations for a further rate-increase in March, with the Fed citing a low inflation outlook and global market turmoil as threats to the US economy. Attention this week will turn to the RBA who are expected to keep rates on hold. Of importance also will be China data over the week, with the potential for AUD downside pressure if data disappoints.

COT Indicators

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

LFOrder Flow Trader Bullishaucot

USDCAD OutlookBullish

The Canadian Dollar continued to reclaim higher ground last week as a rebound in Oil prices and US Dollar weakness conspired to support the beleaguered Canadian currency. Canadian GDP on Friday printed in line with expectations. Traders will be monitoring Oil as it rests just under the key $34.50 resistance level. Canadian unemployment on Friday the key domestic data focus this week.

COT Indicators

  • Strength active buy signal, ticks up
  • Index active buy signal, ticks up
  • Momentum sell signal, bearish sell signal, ticks up towards convergence

LFOrder Flow Trader Bearishucadcot