Trading Themes: Despite softer than expected December CPI data the US dollar advanced again last week as the policy divergence present between the US and other G10 economies was further endorsed as the ECB paved the way for further easing in March and investor expectations grow for further easing also from the BOJ. The FOMC rate decision this week is not expected to see a further increase though traders will be paying close attention to the policy statement for clues as to the timing of the next increase.
- EUR: Draghi hints at more easing in March, weighs on euro
- GBP: BoE rate expectations pushed back again amid more Brexit concerns
- JPY: BOJ meeting will be closely eyed as market remains undecided on further easing measures
- CHF: SNB Chief Jordan reiterates the central bank's goal of price stability in the medium term
- CAD: Crude bounce and the BOC on hold sparks profit taking
- AUD: Continues to trade with global risk sentiment, consumer inflation data on watch this week
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, increased on the week
- CAD bearish, increased on the week
EUR/USD – Outlook Bearish
The single currency was ultimately driven lower on the week as a recovery in risk-appetite stemming from the ECB’s January meeting saw a rebound in equity markets. The ECB noted that continued oil price declines were weighing heavily on the inflation outlook, which is now thought to be significantly lower over 2016 than projected in December, and cited also the continuing downside risks to inflation and growth stemming from the slowdown in emerging markets. The ECB have committed to reviewing its monetary policy stance in March and have prompted a heightening of easing expectations among investors. Eurozone CPI on Friday is the key domestic data focus.
COT Indicators
- Strength active sell signal, ticks up
- Index active sell signal, ticks up
- Momentum active sell signal, ticks up
LFOrder Flow Trader Bearish
GBP/USD – Outlook Bearish
The sterling was able to avoid printing a sixth consecutive negative week as a rebound in risk-sentiment towards the end of the week prompted some short covering in the beleaguered British pound, with an unexpected drop in in Public Sector Net Borrowing adding support for the move. The latest labour conditions data continued its recent theme, showing a further decline in the Unemployment Rate but also a decline in average weekly earnings. The disappointing reversal in wage-growth momentum alongside growing uncertainty surrounding the issue of a “Brexit” still weighs on GBP despite this correction. 4Q GDP is the key domestic data focus for the week.
COT Indicators
- Strength active sell signal, ticks down
- Index active sell signal, ticks down
- Momentum active sell signal, ticks down
LFOrder Flow Trader Bullish
USD/JPY – Outlook Bullish
The Japanese yen was driven lower last week in part by a recovery in global risk-sentiment and also by mounting expectations of further BOJ stimulus to be announced this week. A Japanese Govt official commented mid-week that the Japanese Government were closely watching currency moves which was taken as a clear sign by investors that the recent strength in JPY will force the BOJ’s hand. BOJ monetary policy statement will be release on Friday.
COT Indicators
- Strength active sell signal, bearish sell signal, ticks down
- Index active sell signal, consolidates at lows
- Momentum active sell signal, ticks down
LFOrder Flow Trader Bullish
USD/CHF – Outlook Bullish
Swiss National Bank Chairman Thomas Jordan sees scant danger of a deflationary spiral in Switzerland, he said in an interview aired by Swiss broadcaster SRF last week. Jordan stressed the central bank’s goal was to ensure price stability in the medium term, though there would always be short-term disruptions such as the oil price collapse and the impact of the strong Swiss franc.
COT Indicators
- Strength active buy signal, ticks up
- Index active sell signal, ticks up
- Momentum active sell signal, ticks down
LFOrder Flow Trader Bullish
AUD/USD – Outlook Bearish
The Australian dollar reversed some of its recent losses last week as a rebound in risk-sentiment and commodity prices spurred some short-covering in the Aussie. Intervention by the PBOC and the promise by Chinese Vice President Li that China would continue efforts to stabilise equity markets helped calm investor nerves and stem the volatility that marred the first half of the week.
COT Indicators
- Strength active sell signal, ticks down
- Index active sell signal, bearish sell signal, enter short positions at Friday’s close or better
- Momentum active buy signal, ticks down
LFOrder Flow Trader Bullish
USD/CAD Outlook – Bullish
The Canadian dollar staged a much needed recovery last week as a support stemming from a solid rebound in oil prices was strengthened by the Bank Of Canada’s decision to keep rates on hold. The BOC were largely expected to cut at their January meeting and the decision to hold, alongside a rather neutral statement, took many by surprise spurring profit-taking on some CAD short positions. The latest CPI data on Friday showed that domestic inflation was seen rising at the fastest pace for more than a year in December. Canadian GDP on Friday is the key domestic data focus.
COT Indicators
- Strength active buy signal, ticks up
- Index active buy signal, ticks up
- Momentum sell signal, bearish sell signal, ticks up
LFOrder Flow Trader Bearish
