Trading Themes: The US dollar continues under a raft of steady pressure following recent comments by Fed Chair Yellen which belied the more Hawkish sentiment espoused by other Fed members in recent weeks. In her speech to the Economic Club of New York, Yellen diverged from recent hawkish comments from other Fed officials, saying the Fed should proceed “cautiously” with raising rates, highlighting her concerns over prevailing headwinds from weaker global growth, low oil prices and China. The Fed Chair was also not confident that the recent spike in inflation is sustainable. This reinforced the view that the Fed rate normalization path will be very gradual, and odds are rising that we may only see just one hike this year. Traders now look ahead to the March FOMC minutes release for further colour.
EUR: As EUR strengthens, traders less concerned that ECB will look to target the currency with focus instead on EMFX weakness
GBP: Brexit concerns still plague the outlook. Focus on raft of PMI data sets alongside both Industrial and Manufacturing Production data
JPY: JPY underpinned by huge foreign investor outflows with bond outflows last week at their largest level since 2008
CHF: A lack of EUR downside keeps the pressure off the SNB for now. CPI and Unemployment eyed next.
AUD: USD weakness paves way for further AUD upside though traders wary of RBA
CAD: Positive Canadian data plus weak USD trumps the slide in oil prices for now.
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, decreased on the week
- CHF bullish, decreased on the week
- AUD bullish, flat on the week
- CAD bearish, decreased on the week
EUR/USD Outlook – Bearish
With USD coming under pressure in the wake of Yellen’s Dovish commentary, the single currency has returned to an upward trajectory as the policy divergence which was starting to weigh on EUR/USD dissipates alongside unwinding US rate hike expectations. A raft of key EuroZone data leads the domestic data focus this week with attention also to turn to ECB president Draghi who attends the Portugese President’s EUR council on Thursday. Traders will be keen to see if recent EUR strength is referenced.
COT Indicators
- Index active buy signal consolidates gains
- Strength active sell signal remains near lows
- Momentum signal crosses lower, gives sell signal
LFOrder Flow Trader Bullish
GBP/USD Outlook – Bearish
Brexit concerns continue to drive the action in Sterling which came under huge pressure again last week as the latest UK manufacturing survey data printed below expectations once again, highlighting the continued decline of the manufacturing industry in Britain. News also of the potential closure of Tata steel’s operations in the UK also weighed heavy with such an event likely to deal a massive blow to the health of the UK economy. GBP closed the 1st quarter of 2016 with the biggest losing quarter (on a trade weighted basis) since 2008. Traders now turn their focus to GDP estimate, alongside Industrial & Manufacturing Production data and the remaining PMIs: Services & Composite.
COT Indicators
- Index sell signal, consolidates
- Strength sell signal consolidates
- Momentum buy signal
LFOrder Flow Trader Bearish
USD/JPY Outlook – Bullish
JPY has been under pressure recently, driven both by huge investor outflows (with JGB selling at its largest level since 2008) and Japanese investors continuing to purchase foreign securities into the Japanese fiscal year end. Alongside the volatility in the JBG market which has fuelled investor outflows, low inflation expectations continue to weigh on the Japanese economic outlook.
COT Indicators
- Strength active sell signal, ticks up
- Index active sell signal remains near lows
- Momentum flat, awaiting new signal
LFOrder Flow Trader Bearish
USD/CHF Outlook – Bullish
With EUR having moved counter-intuitively higher in response to the latest ECB measures, it seems some pressure has likely been alleviated from the SNB who refrained from moving on rates at their recent meeting. Worth noting however that recently 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 active sell signal, ticks down
- Momentum active sell signal ticks down
LFOrder Flow Trader Bullish
AUD/USD – Outlook Bullish
In the wake of a fresh unwinding of US rate-hike expectations, The Australian Dollar has once again returned to forge new highs as commodity and equity markets leap ahead on a surge in risk-sentiment. Boosted by resilient domestic labour-market conditions and a shift into positive positioning, AUD has continued to strengthen since the turn of the year, traders will be wary though of how high AUD can go before the RBA are forced to step in on behalf of the country’s exporters who suffer during times of AUD strength.
COT Indicators
- Strength active buy signal, ticks down
- Index active buy signal near highs
- Momentum active buy signal, ticks down
LFOrder Flow Trader Bullish
USD/CAD Outlook – Bullish
The Canadian Dollar recovered territory over recent trading, despite further losses in oil, as the latest data showed that Canada’s economy grew by a much larger-than-expected 0.6 percent in January, it was the fourth straight monthly gain and the biggest since July 2013. This data comes shortly after the recent BOC meeting where the central bank remained on hold and struck a surprisingly neutral tone in their economic assessment, despite the majority of forecasters taking a bearish view on CAD.
COT Indicators
- Strength active buy signal, ticks down
- Index active sell signal, ticks down
- Momentum sell signal, ticks up
LFOrder Flow Trader Bearishh
