Weekly Fundamentals - 16 January 2016

 
THE WEEK AHEAD FUNDAMENTALLY - KEY DATA TO WATCH OUT FOR
 
We concluded last week's report by stating "This is the second trading week for the New Year. The first one was traumatic for risk the second should see some stability return. We are therefore sanguine at these levels for the SP500, continue to be bullish on commodities and mixed when it comes to the FX pairs in the short term with a slight bias to USD bearishness".
We could not have been more wrong. We should not have been sanguine on theSP500 as it sunk and nor should we have been bearish on the USD which rallied.
IN FX the brunt of selling was seen in GBP which fell convincingly as well as the commodity backed currencies AUD, CAN$ and the NZD.
This week has a good cross section of data for most of the pairs we follow and as usual we analyze COT.
 
USD: USD data starts on Wednesday with Building Permits expected to fall from last month's 1.28M to 1.20M
This is followed by both Core CPI and CPI. The former excludes food and energy and is expected to remain unchanged at 0.2%. CPI is also expected to remain unchanged at 0.0%.
Finally on Wednesday we have Crude Oil Inventories which will be closely followed due to the recent carnage in the crude market.
On Thursday we have the usual Unemployment Claims data estimated to show that 281,000 joined the claimant line.
We also have the FED Manufacturing Index expected to be a negative 3.1 from last month's -5.9.
COT data shows that large commercials increased their net short position slightly in the US$ Index from 48,881 to 51,336. We therefore continue to remain SLIGHTLY BEARISH.
 
EURO:On Tuesday we have the German Economic Sentiment number expected to fall dramatically from 16.1 to 8.2.
On Thursday we have two important items.
We start with the Minimum Bid rate which is the interest rate on the main refinancing operations that provide the bulk of liquidity to the banking system and is expected to remain unchanged at 0.05%.
This is followed by the ECB Press Conference.
On Friday we have both the French and German Manufacturing PMI numbers. The French number is thought to rise from 51.4 to 51.6 and the German to fall slightly from 53.2 to 53.
COT data for the Euro shows that large commercials slightly decreased their net long position from 179,372 to 161,751. We remain BULLISH.
 
GBP:Tuesday sees the release of CPI expected to remain unchanged at 0.1%.
On Wednesday we have Average Earning Index thought to fall from 2.4% to 2.1%
This is followed by Claimant Count Change which is expected to rise from 39,000 to 41,000.
Finally on Friday we see Retail Sales which is expected to fall quite severely from last month's 1.7% to -0.1% indicating contraction in retail activity and hence consumer spending.
Large commercials continued to increase their net long position from 54,401 to 58,816. This is the largest 52 week rolling net long and we therefore alter our view from BULLISH to SUPER BULLISH.
 
YEN:The only item for the Yen which in fact also affects the other currencies is the 4 day World Economic Forum starting on Wednesday.
The World Economic Forum is an annual meeting held in Switzerland and attended by central bankers, prime ministers, finance ministers, trade ministers, and business leaders from over 90 countries. Most meetings are open to the press and officials usually talk with reporters throughout the day. Comments from central bankers and other influential officials can create significant market volatility.
COT data shows that large commercials dramatically decreased their net long position from 4,543 to -23,845. We therefore remain BEARISH.
 
AUD:There is no data for the AUD this week.
COT data shows that large commercials significantly increased their net long position from 26,056 to 46,601. We therefore alter our view from NEUTRAL to SLIGHTLY BULLISH
 
CNY:Two items for the CNY this week both on Monday.
We start with GDP which is expected to remain unchanged at 6.9%.
This is followed by Industrial Production which is anticipated to fall slightly from 6.2% to 6.0%.
There is no COT data for the CNY.
 
COT DATA OF NOTE:
S&P500: large commercials decreased their net short position from 41,874 -36,731. The SP500 has suffered a very bad two weeks. The move has been swift and sudden. We are now witnessing a marked increase in bearish commentary. This plus a reduction in large commercial shorts means we must remain SLIGHTLY BULLISH in the short term.
GOLD: Large commercials increased their net short position from 19,275 to 43,585. As long as large commercials hold a net short position which is less than 100,000 we err on the side of bullishness. However the not insubstantial increase this week means that we alter our view from SUPER BULLISH to BULLISH.
SILVER: Last week saw large commercials slightly increase their net short position from 28,799 to 30,562. We therefore remain NEUTRAL.
The gold:silver ratio narrowed from 79.30 to 78.27 indicating silver outperformance for the week.
 
From this week we are adding products to our COT watchlist. The products will be for both those that are at large commercial extremes and products we regularly comment on in our DAILY REPORTS and WEEKLY BONUS VIDEOS.
COPPER: Copper is an important metal as it is a leading indicator for many commodities. Large commercials increased their net long position from 37,150 to 48,172. Large commercials generally carry a net neutral position and therefore their current net long which is close to a rolling 52 week high is significant. We are therefore instigating our analysis as BULLISH.
US 30 YEAR BOND: Large commercials slightly increased their net short position from 3,074 to 5,114. We therefore instigate our COT analysis as SLIGHTLY BEARISH.
CRUDE OIL: Large commercials decreased their net short position from -188,565 to 178,240. This is their smallest net short position since December 2012. We therefore instigate our COT analysis for crude with a BULLISH view.

THOUGHTS FOR NEXT WEEK
We are entering the third week of trading for 2016. the first two weeks have hurt most traders as heightened volatility in both directions has meant stops being activated.
As more and more participants anticipate the very recent past to continue that is least likely to happen.
For this week we believe that the $ will strengthen against the YEN, weaken against commodity currencies, precious metals to underperform relative to the SP500.
As wicked, sharp and sudden the fall in risk has been an equally wicked and sudden corrective bounce is about to occur.
Therefore reduce precious metal exposure, add SP500, add STG and AUD and finally take profits on YEN longs.
 
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Stay nimble. Good luck trading.

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