Weekly COT Report: Traders Scaled Risk Before FOMC

Trading Themes: Last week saw CPI dropping 0.1% on the month, the first decline since January prompting USD weakness ahead of the FOMC which passed, as expected, without a rate hike. The accompanying statement and press conference delivered more of a Dovish message than markets were expecting prompting further USD weakness.

  • EUR ECB official’s were quick to emerge with Dovish comments post Thursday’s FOMC meeting, expect further doveish rhetoric this week
  • GBP slightly softer as rate expectations are pared back with BOE Chief Economist Haldane suggesting the next UK rate move could be down not up
  • JPY domestic markets are closed this week, so expect trade to take its lead from the USD this week
  • CHF SNB keeps rates unchanged. SNB President Jordan admitted that a Fed rate hike would have an impact on Switzerland
  • CAD tested lower end of recent range post FOMC but bounced as Aug CPI came in flat at 0.0%m/m, in line with expectations. Core inflation also matched consensus, picking pace to 0.2%m/m from 0.0% in the month prior
  • AUD This pair has been lifted by a rebound in the copper prices recently and another upside surprise in the employment numbers. The leadership change at home, hardly put a dent in the currency

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 neutral, bearish bets reduced to leave positioning neutral on the week
  • CHF neutral, bearish bets reduced to leave positioning neutral on the week
  • JPY bearish, increased on the week
  • AUD bearish, decreased on the week
  • CAD bearish, flat on the week
  • EURUSD – Outlook Bearish

Remains supported in the wake of broad Dollar weakness. Greek elections and ECB speeches next week should see Euro continue higher due to it’s inverse relationship with risk however, sustained strength in the aftermath of the Dovish FOMC could spur more Dovish QE talk by the ECB and traders will be wary of any further policy announcements at the ECB’s October meeting.

COT Indicators

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

LFOrder Flow Trader Bullish

EUCOT

GBPUSD – Outlook Bearish

Sterling strengthened over the week as UK wages were seen growing at 2.9% , the fastest rate in six years, followed by further hawkish comments from BOE Governor Carney confirming that the issue of a rate rise would come into “sharper relief at the turn of the year”. BOE’s Haldane, a well known dove, commented on Friday that should downside risks materialise the BOE should consider easing instead of tightening, spurring some GBP weakening into the close on Friday.

COT Indicators

  • Strength active sell signal, ticks back up towards convergence
  • Index active buy signal, exit short positions and enter long positions at Fridays close or better
  • Momentum active buy signal, ticks up from last weeks low

LFOrder Flow Trader Bearish

gucot

GBP2015-09-21 12_10_55-Reuters - currency futures positioning

USDJPY – Outlook Bullish

Safe haven flows continue to drive JPY which strengthened on the back of the FOMC decision. Markets are increasingly expecting further BOJ easing and this week’s CPI data will be closely watched.

COT Indicators

  • Strength active buy signal, ticks up away from convergence area
  • Index active sell signal, ticks up from last weeks low
  • Momentum active buy signal, bullish convergence cross

LFOrder Flow Trader Bearish

ujcotJPY2015-09-21 12_13_53-Reuters - currency futures positioning

USDCHF – Outlook Bullish

The SNB’s unchanged decision and the comments by the SNB President Jordan admitted that a Fed rate hike would have an impact on Switzerland, Governor Jordan added the usual statements that the Franc was still overvalued and stressed that negative rates are likely in Switzerland for the foreseeable future.

COT Indicators

  • Strength active buy signal, continues to tick down
  • Index active sell signal, bearish convergence cross, enter short positions at Friday’s close or better
  • Momentum active buy signal, continues to tick down

LFOrder Flow Trader Bearish

uchfcot

AUDUSD – Outlook Bearish

The Australian currency rebounded last week fuelled by short covering into the FOMC and further USD weakness following the decision. The absence of higher US rates and the prospect of Chinese stimulus leave AUD supported in the near term with RBA Governor Stevens praising the robustness of the Australian economy in comments made last week. Risk sentiment is likely to shape the Aussie’s trading outlook this week in the absence of tier one domestic data.

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 sell signal, exit long positions and enter short positions at Fridays close or better

LFOrder Flow Trader Bullish

aucotAUD2015-09-21 12_20_07-Reuters - currency futures positioning

USDCAD Outlook – Bullish

Strength in oil prices last week saw the Canadian currency supported though damage to the country’s economy from the continued oil price decline portends further BOC easing despite the BOC sounding more positive in recent communication which was also the case before the two previous rate cuts we saw this year.

COT Indicators

  • Strength active buy signal, consolidates recent decline
  • Index active buy signal, continues to tick down
  • Momentum sell signal,continues to tick down confirming bearish cross signal

LFOrder Flow Trader Bullish

 

ucadcotCAD2015-09-21 12_22_13-Reuters - currency futures positioning

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