Weekly Fundamentals - 30 January 2016

 
THE WEEK AHEAD FUNDAMENTALLY - KEY DATA TO WATCH OUT FOR
 
In conclusion to last week's report we wrote:
"We are entering the last week of the first month of 2016. Incredibly already one twelfth of the year has nearly gone by. In this one month we have witnessed huge volatility with many traders having suffered severe drawdowns. Many traders will have gotten the vast majority of their trades wrong and will have to have to try recoup one month's worth of losses over the next 11 months.
They will begin over trading, they will begin to chase, they will end up getting stopped out both as the markets fall and rise and the end result is that they will end up losing whilst the markets end up virtually unchanged at the end of the year after hysterical bouts of volatility.
For next week we anticipate the USD to continue rising against the YEN, falling against the GBP, AUD and CAN$ and the SP500 to continue to slightly outperform against precious metals. Silver should outperform gold."
 
Let us see how we performed. Volatility was high so we were correct on that front.
The USD rallied strongly against the YEN so correct.
The USD did fall against both the CAN$ and the AUD and closed the week virtually unchanged against GBP. In this case two out of three correct.
The SP500 rose 1.64% on the week whilst gold rose 1.83%. We were therefore wrong.
Silver only rose 1.41% so again we were wrong.
 
This week is an incredibly busy one for data and as it is the first week of the month we also have the much anticipated employment data in the USA on Friday.
COT data also makes for interesting reading.
 
USD:The week begins on Wednesday for the USD when we have three items.
We start with the Non-Farm Employment Change figure which measures the change in the number of employed people during the previous month, excluding the farming industry and government. It is expected to fall from last month's 257,000 to 191,000. 
This is followed by Non-Manufacturing PMI expected to remain virtually unchanged from last month's 55.3 at 55.2. Finally we have Crude Oil Inventories which will be closely followed.
On Thursday we have the customary Unemployment Claims figure which is guesstimated at 286,000 from last month's 278,000.
Friday is the big day with Average Hourly Earnings thought to rise from 0.0% last month to 0.3% this month. Non-Farm Payroll is thought to fall significantly from 292,000 to 192,000 and the Unemployment Rate is anticipated to remain the same at 5.0%.
COT data shows that large commercials increased their net short position slightly in the US$ Index from 50,262 to 51,678. We therefore continue to remain SLIGHTLY BEARISH.
 
 
EURO:A light week in terms of data but an important one as the ECB President speaks on two occasions on Monday and on Thursday.
COT data for the Euro shows that large commercials slightly decreased their net long position from 147,467 to 142,818. We amend our view from BULLISH to SLIGHTLY BULLISH.
 
GBP:A big week for GBP especially in light of the recent weakness.
On Monday we have manufacturing PMI expected at 51.8 from 51.9.
On Tuesday we have Construction PMI thought to fall from 57.8 to 57.5.
Wednesday sees Services PMI estimated at 55.4 from last month's 55.5.
Thursday is the big day with the BOE Inflation Report, the MPC Official Bank rate Votes thought to remain unchanged at 1-0-8, the Monetary Policy Summary and the Official bank Rate expected unchanged at 0.5%.
Finally on Thursday The Governor of the BOE speaks.
Large commercials continued to increase their net long position from 64,795 to 72,297. This is the largest 52 week rolling net long and we therefore remain SUPER BULLISH.
 
YEN: Only one item for the YEN this week.
On Tuesday the BOJ Governor speaks.
COT data shows that large commercials continue to decrease their net long position from -40,417 to -54,641. We therefore remain BEARISH.
 
AUD: Also a busy week for the AUD.
On Monday we have the Cash Rate expected to be unchanged at 2.00%. This is followed by the RBA Rate Statement.
On Tuesday we have Building Approvals expected to rise by 4.6% from last month's fall of -12.7%.
We also have the Trade balance number continuing negative at -2.45B from last month's -2.91B.
On Thursday we have the RBA Monetary Policy Statement and Retail Sales unchanged at 0.4%.
COT data shows that large commercials slightly decreased their net long position from 59,902 to 50,874. We therefore remain SLIGHTLY BULLISH
 
CNY: One item for the CNY this week on Sunday night.
Manufacturing PMI is expected at 49.6 slightly lower than the previous month reading of 49.7

There is no COT data for the CNY.
 
COT data of note on products we regularly comment on in our DAILY REPORTS and WEEKLY BONUS VIDEOS and for those products which show large commercials with extreme net positions.
 
S&P500: large commercials increased their net short position from -59,451 to -63,145. We continue to remain SLIGHTLY BULLISH in the short term. Please see our commentary for our reasoning below.
GOLD:Large commercials increased their net short position from 40,143 to 59,833. As long as large commercials hold a net short position which is less than 100,000 we err on the side of bullishness. We therefore remain BULLISH.
SILVER:Last week saw large commercials continue to increase their net short position from -36,034 to -45,124. We therefore alter our view from NEUTRAL to SLIGHTLY BEARISH.
The gold:silver ratio slightly widened from 78.43 to 78.50 indicating slight silver underperformance for the week.
COPPER: Copper is an important metal as it is a leading indicator for many commodities. Large commercials slightly decreased their net long position from 49,154 to44,125. 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 therefore remain BULLISH.
US 30 YEAR BOND: Large commercials dramatically increased their net short position from 5,734 to 15,413. We therefore alter our view from SLIGHTLY BEARISH to BEARISH.
CRUDE OIL: Large commercials continue to increase their net short position from -191,047 to -209,050. This remains very close to their smallest net short position since December 2012. We therefore remain BULLISH. See our commentary below.
CAN$: Large commercials very slightly decreased their net long position from 82,481 to 81,197 which is close to the 52 week rolling high achieved in August 2015 at 89,780. We therefore remain BULLISH.

THOUGHTS FOR NEXT WEEK
The end of the first month of 2016. It has been volatile and for a number of markets it has been the worst start of a new year since records have been kept.
Currently there is no prevailing market consensus on either direction or magnitude as market participants retreat in confusion.
In situations like this it is always best to go against the very recent price action.
We therefore predict that risk as measured by the SP500 will experience some very short term weakness on the back of crude oil falling perhaps to the mid to high 20's. If this happens it will happen in the first two weeks of February at which time risk will represent a major buy. If crude does not fall however watch the $40 mark closely as a break above that will also result in risk rallying.
Irrespective of how crude behaves we continue to favour the GBP, CAN$ followed by the AUD in that order.
With regards to both gold and silver we do not anticipate either metal to behave extremely. We favour gold only because the COT data tells us to do so.
 
Therefore for the upcoming week sell bonds, buy GBP, CAN$ and to a lesser extent AUD and watch crude closely.
 
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Stay nimble. Good luck trading.

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