Weekly COT Report: Sterling Bears Pull Back Ahead Of Brexit Vote

Trading Themes: June FOMC failed to reassure USD bulls that a rate-hike is still likely in the coming months. Citing global risks from Brexit and mixed economic data the Fed kept rates on hold in June with no signal as to the timing of future rate-hikes.  On the data front US May Retail Sales were stronger than expected at 0.5% vs 0.3% expected whilst US CPI was weaker than expected YoY in May printing 01% vs 1.1% expected.

EUR: Weighed by Brexit volatility, supported by USD weakness.
GBP: Sterling bolstered by growing support for the “VoteStay” Brexit campaign.
JPY: BOJ on hold though markets wary of intervention following JPY strength.
CHF: Safe haven demand driving Swiss Franc higher.
AUD: AUD bolstered by weakened USD though weighed by Brexit volatility and risk-off periods.
CAD: Oil remains supportive though Brexit vote looms.

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

EURUSD Outlook – Bearish

The single currency remains pressure by Brexit uncertainty with investors anticipating damage to the EU economy should Brexit occur. ECB Vice President Victor Constancio spoke this week saying that he believes “without upheavals in the world economy we can reach a slightly higher level of inflation in 2018 than the ECB’s June forecast of 1.6%” . He also commented “the full implementation of our policy package adopted last March is still going to produce effects in the forthcoming months and will contribute to achieve our mandate of delivering inflation below but close to 2%, over the medium-term”. Also on the wires was ECB’s Nowotny who noted that the ECB are ready to cushion the market with liquidity should Brexit occur.  On the data front Euro zone trade surplus rose to a record high of €28.0 billion in April (March: revised to € 23.7billion) due to quicker MOM increase in exports (+4.9%) vs imports (+2.6%)

COT Indicators

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

LFOrder Flow Trader Bearish

eucot

GBPUSD Outlook – Bearish

Headline and core CPI in the UK missed expectation in May, increasing BOE’s concerns of achieving the desired inflation target on top of intensifying risks on economic growth due to the upcoming EU referendum. CPI was unchanged at 0.3% YOY, less than the expected 0.4% YOY growth. Core CPI on the other hand, rose 1.2% YOY for the month of April and May. Other price gauges were also lackluster. Retail prices climbed 1.4% YOY in May (April: +1.3% YOY) while producer prices dropped 0.7% YOY last month. As expected, the BOE kept rates on hold at their June meeting with a statement that contained stark warnings about the risks of Brexit which the BOE forecast will lead to a surge in Unemployment and adversely affect the global economy also. GBP UK unemployment rate dropped 0.1ppt to 5.0% in the three months through April, the lowest in more than a decade as the number of jobs added rose by 55k to a record of 31.6 million. In sync, jobless claims continued to slide in May (-0.4k vs April: +6.4k) while claimant count was unchanged at 2.2%. News later in the week that a British MP had been shot and killed caused a rally in support for the “Remain” campaign seeing GBP rally in tandem

COT Indicators

  • Index buy signal given
  • Strength sell signal ticks up
  • Momentum buy signal given

LFOrder Flow Trader Bearish

gucot

USDJPY Outlook – Bullish

BOJ made no change to its existing monetary policy, increasing its annual monetary base at the pace of about 80 trillion yen. Interest rate will be maintained at -0.1% and the central bank offered a slightly weaker view on consumer inflation than in April which is projected to stay slightly negative or about zero percent in the short term

COT Indicators

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

LFOrder Flow Trader Bearish

ujcot

USDCHF Outlook – Bearish

USD weakness in the face of unwinding US rate hikes expectations have lent support to the Swiss Franc in recent sessions with price also boosted by safe-haven demand in the wake of increasing market volatility ahead of the Brexit referendum. SNB’s Jordan has warned of a “nuclear” option in the event of continued CHF appreciation stating that the SNB can cut the exemption from negative deposit rates that it extended to most domestic banks’ reserves.

COT Indicators

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

LFOrder Flow Trader Bearish

uchfcot

AUDUSD – Outlook Bullish

The Australian Dollar rebounded in tandem with the GBP since a British member of parliament was shot dead in the street, markets rekindled sentiments supporting Britain to stay. The Australia’s May jobs data showed an economy in fairly good health. However, the external risks to growth were not lost on policy makers

COT Indicators

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

LFOrder Flow Trader Bearish

aucot

USDCAD OutlookBullish

The Canadian Dollar softened over the week in sync with moves in Oil which came under pressure amidst a heightening of investor uncertainty amidst growing concerns for Brexit. Canadian CPI on Friday printed just below expectations.

COT Indicators

  • Strength sell signal ticks up
  • Index active sell signal remains at lows
  • Momentum signal turns flat, await new signal

LFOrder Flow Trader Bullish

ucadcot