Trading Themes: In the absence of key US data last week USD was driven mainly by EUR flows in the wake of the ECB meeting, falling sharply as the EUR rallied post-decision. Attention now turns firmly to this week’s FOMC meeting. CME group is pricing very close to 0% chance of a rate-hike though traders will be keen to scrutinise the accompanying statement and press-conference for clues as to the likely rate-path over the remainder of the year.
EUR: Markets digesting the post ECB flows, Eurozone inflation key domestic data on Thursday
GBP: March Budget and BOE to weigh on GBP
JPY: BOJ on the slate, no further easing expected but statement and press conference key
CHF: Huge action from the ECB raises the question of potential further easing from the SNB
AUD: Weak data from China over the weekend caps commodity upside for now. March RBA minutes in focus
CAD: Weak employment data and a move lower in oil have CAD under pressure
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
- JPY bullish, decreased on the week
- CHF neutral, flat on the week
- AUD bullish, increased on the week
- CAD bearish, flat on the week
EUR/USD Outlook – Bearish
ECB President Draghi must have been fiercely disappointed to suffer the same fate as he did in December as the euro rallied following the ECB meeting. However, the new measures announced suggest that the ECB is moving away from attempts to weaken the euro in an effort to fuel external demand and increased import prices and instead is focusing on improving Eurozone credit conditions looking fuel a domestic recovery through supporting the banks and credit-growth.
COT Indicators
- Index active buy signal ticks down
- Strength active sell signal ticks down
- Momentum active buy signal ticks down
LFOrder Flow Trader Bearish
GBP/USD Outlook – Bearish
Brexit concerns took a back-seat last week as sterling was driven higher by a significantly weakened USD and subsequently from firmer risk-sentiment in the wake of the ECB meeting as equities finally turned higher. Upside was capped on Friday as the latest Trade Balance data showed a widening of the deficit. The March budget announcement and BOE meeting will be key focus this week. The Budget is expected to confirm aggressive fiscal tightening measures
COT Indicators
- Index active sell signal ticks lower
- Strength active sell signal ticks lower
- Momentum signal turns flat
LFOrder Flow Trader Bullish
USD/JPY Outlook – Bullish
Better risk sentiment saw JPY in less demand last week as equities eventually broke higher in response to the ECB meeting. Further Bank of Japan’s easing should be a combination of lower negative rates and increased asset purchases, according to comments from Etsuro Honda, an adviser to Japanese Prime Minister Shinzo Abe. According to BOJ’s Kuroda, markets are not to expect and further easing at this months policy meeting.
COT Indicators
- Strength active sell signal, ticks down
- Index active sell signal, ticks down
- 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 likley been alleviated from the SNB. 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 crosses lower issuing new sell signal
LFOrder Flow Trader Bullish
AUD/USD – Outlook Bullish
The Australian dollar continued to forge higher ground last week supported by a broadly risk-on appetite. Chinese CPI mid-week was better than expected and kept positive sentiment intact. The RBNZ unexpectedly cut rates which leant further support to the Aussie as AUD/NZD was driven sharply higher. AUD starts the week under a little pressure as weak China data over the weekend turns commodities lower. Traders will be keen to see the RBA March meeting minutes this week.
COT Indicators
- Strength active buy signal, ticks up
- Index active buy signal, consolidates gains
- Momentum active buy signal, ticks up
LFOrder Flow Trader Bullish
USD/CAD Outlook – Bullish
Crude oil managed to break above the key $38 resistance level as optimism for a proposed OPEC production freeze continues to keep price supported as Short positions are squared. This move supported the Canadian dollar over the week which also benefited from the BOC deciding to keep rates unchanged alongside a surprisingly upbeat policy statement. In contrast, Canadian employment data on Friday was weaker than expected with the unemployment rate increasing to 7.3% from 7.2%.
COT Indicators
- Strength active buy signal, ticks down
- Index active sell signal, ticks down
- Momentum sell signal, ticks down
LFOrder Flow Trader Bearish
