Weekly COT Report: USD Longs Scaled Back Again, GBP Turns Bullish

Trading Themes: Week ahead has US NFP as the major headline risk event. Before that, we have the ADP private employment report that could also shift sentiment. Market players are focused on the question as to whether doors to a rate move are reopening. USD firmed, following comments from Fed officials at the Jackson Hole Symposium. Fed Vice-Chair Fischer said “should not wait until inflation is back to 2% begin tightening”; Bullard and Mester voiced “no panic about the recent market turmoil”; Lockhart said the chance of a September rate hike remains 50-50. Market implied probability of a rate hike in September has now moved back up to 38%, from 24% low last week during the height of the risk asset sell off.

EUR very volatile week as the single currency continues to trade as a ‘funding currency’ having an inverse correlation to risk sentiment in periods of risk aversion the Euro trades higher in periods of positive risk sentiment the Euro trades lower. ECB will be closely eyed Thursday
GBP remained relatively stable during the initial market turmoil last week, but gains were eroded into the back end of the week as traders started to reprice UK rate expectations in tandem with the reduction in FED rate expectations. Noteworthy that GBP has turned net long for the first time since September 2014
JPY was heavily whipsawed last week as traders sought the safe haven of the JPY in the early part of the week but moved out of the JPY safety and back into more risk driven USD as market sentiment had a dramatic turnaround Tuesday
CHF Swiss GDP better than expected puts a bid under the CHF as market wasn’t positioned for an upside surprise. SNB monitoring any signs of rapid appreciation
CAD last week’s dramatic decline and subsequent reversal in WTI crude led the CAD’s directional moves last week as crude stabilized so did the CAD
AUD took another hit as the reverberations from the Yuan devaluation and the subsequent market turmoil drove the AUD to fresh six year lows. RBA on hold as expected as AUD deprecation is being driven by external factors right now

Let’s take a headline look at what the latest COT data is showing us…
USD aggregated net long positions decreases 26% to 24.4Bln
EUR net spec shorts decreases 26% to 9.5Bln
JPY net short positioning decreases 55% to 4.1Bln
AUD net shorts increases 24% to 4.5Bln
EURUSD – Outlook Bearish

Euro was soft amid broad USD strength. Friday saw a low of 1.1156 traded. Monetary policy divergence theme is growing again, after slowing last week as Fed officials’ comments at Jackson Hole appeared to have re-open doors for a September rate hike. Germany has retail sales along with the more important CPI estimates to be released, weaker number on those fronts will weigh on the EUR. ECB meets again on Thursday and while no further action is expected from the central bank, there could be more EUR negative comments with the inflation target still elusive.

COT Indicators
● Strength active sell signal, continues to tick higher
● Index active buy signal, at 2015 highs
● Momentum active buy signal, ticks down

LFOrderFlowTrader – Bearish

 

euro2015-09-01 12_19_24-

01092015-09-01 12_21_12-Reuters - currency futures positioning

GBPUSD – Outlook Bullish

Closed largely unchanged from where it opened last Friday. BoE Carney reiterated his earlier comments – that recovery in UK’s economy “will likely put the decision as to when to start the process of gradual monetary policy normalization into sharper relief around the turn of this year”. He added that BoE could look through the temporary disinflationary impact on inflation from lower demand in China for commodities but would watch for any longer lasting impact on Britain from a slowing of the world’s No 2 economy.”

COT Indicators
● Strength active buy signal, exit shorts position and enter long at Friday’s close or better
● Index active buy signal, at 2015 highs
● Momentum active buy signal, ticks down

LFOrderFlowTrader – Bearish

cable192015-09-01 12_35_49-

cable01092015-09-01 12_36_48-Reuters - currency futures positioning
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USDJPY – Outlook Bullish

After slipping to a level not seen since Jan of 116.18, the USDJPY has rebounded back above the 121-handle on the back of continued broad dollar strength. Dips are being viewed as an opportunity to buy as the recent market turmoil has traders sensing the potential for further BOJ easing in October. Industrial production print out this morning disappointed, rising by just 0.2% y/y in Jul against consensus’ 0.8% (Jun: 2.3%)

COT Indicators
● Strength active buy signal, continues to retreat from recent highs
● Index active sell signal, exit long positions and enter short positions at Fridays close or better
● Momentum active buy signal, ticks lower towards convergence

LFOrderFlowTrader – Bullish

jpy2015-09-01 12_39_16-

JPY2014-10-20 11_14_08-Reuters - currency futures positioning

USDCHF – Outlook Bullish

The Swiss franc strengthened after the domestic GDP report showed that Switzerland’s economy accelerated in Q2, surprising markets on the upside. “The SNB’s monetary policy is expected to weaken the Swiss franc over time and the central bank has also made clear that it will remain active in the foreign exchange market, if necessary,” according to comments from Governor Jordan

COT Indicators
● Strength active buy signal, continues to tick higher
● Index active buy signal, continues to tick higher
● Momentum active buy signal, continues to tick higher

LFOrderFlowTrader – Bullish

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swissy2015-09-01 12_43_00-Reuters - currency futures positioning

AUDUSD – Outlook Bearish

Concerns over the Chinese economy and concomitant impacts on key commodity prices such as copper and iron will cap upside. At this point, AUD has been hammered by China, by concomitant effects of commodity demands as well as its deterioration in terms of trade. The fall in exports seem to have slowed and approaching a bottom. It could take some time for cheap AUD to lift exports of trade able goods and tourism, as well as retail sales before investors and corporates can be convinced to increase business spending. RBA meeting a nonevent due to AUD declines of late being driven by external factors RBA keeps their powder dry to deal with unwanted AUD appreciation down the road

COT Indicators
● Strength active sell signal, ticks down at new lows since the bearish cross
● Index active sell signal, at new lows since the bearish cross
● Momentum active buy signal, ticks down towards convergence

LFOrderFlowTrader – Bearish

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aussie2015-09-01 12_45_26-Reuters - currency futures positioning

USDCAD Outlook – Bullish

Most of last week’s price movement was about global risk appetite and commodity prices, not domestic economic data. There was no meaningful economic data and Deputy Governor Schembri’s speech didn’t touch on monetary policy. The CRB rose by 3.0% last week. The CRB (The Thompson Reuters Core Commodity Index) received a strong boost from energy, with West Texas Crude rising by 12%. The price of spot Western Canada Select rose by 21% on the week USDCAD tends to most closely track the most volatile factor; last week that factor was clearly oil.

COT Indicators

● Strength active buy signal, retreats from recent highs
● Index active buy signal, retreats from recent highs
● Momentum sell signal, ticks down confirming bearish cross signal

LFOrcerFlowTrader – Bearish

loonie2015-09-01 12_47_59-

loonie2015-09-01 12_48_34-Reuters - currency futures positioning