Weekly Fundamentals - 05 February 2016

 
THE WEEK AHEAD FUNDAMENTALLY - KEY DATA TO WATCH OUT FOR
 
In conclusion to last week's report we wrote:
"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."
 
Now let us see how we fared on our trade recommendations.
Buying bonds was not a good call. The bond rallied in the face of risk aversion.
Buying the GBP was a very good call.
Buying the CAN$ was also a good call.
We stated to 'buy the AUD but to a lesser extent'. That too was a good call as it closed the week very slightly higher.
 
Therefore we got 3 out of 4 correct. Not too bad.
 
Last week's NonFarm Payroll data was far weaker than expected coming in at 151,000 against expectations of 190,000. Interestingly risk did not like it. Over the last few years bad data has been met with buying as market participants bought on the view that rates would remain low for longer. That does not seem to be the case now. Now bad numbers are just plain and simply bad.
This week is a very quiet one in terms of data so it is particularly important to analyze COT data. In fact there is no data at all to speak of on either Monday or Tuesday.
The Chinese New Year break means that Asian trading will be light.
We take this opportunity to wish our Chinese readers an very happy, healthy and prosperous Year of the Monkey.
 
USD: The week begins on Wednesday for the USD when we have two items.
Firstly we have the FED Chairperson speaking which is important followed by Crude Oil Inventories which is equally if not more important.
On Thursday we have the customary Unemployment Claims number expected to remain virtually unchanged at 287,000. The FED Chairperson continues to speak.
On Friday we Core Retail Sales expected to come in at 0.0% from last month's slight fall of -0.1%. This number excludes car sales. We have Retail Sales which includes cars and is expected at 0.1% also a small rise from last month's -0.1%. Finally we have Consumer Sentiment expected to rise from 92.0 to 92.6.
COT data shows that large commercials increased their net short position slightly in the US$ Index from 51,678 to 52,559. We therefore continue to remain SLIGHTLY BEARISH.
 
EURO: Only one item for the Euro this week which is the German GDP number on Friday expected to remain unchanged at 0.3%.
COT data for the Euro shows that large commercials decreased their net long position from 147,467 to 111,997. We therefore remain SLIGHTLY BULLISH.
 
GBP: Also only one item for GBP.
On Wednesday we have Manufacturing Production which is expected to be 0.0% from last month's fall of -0.4%.
Large commercials very slightly decreased their net long position from 72,297 to 71,746. This is the largest 52 week rolling net long and we therefore remain SUPER BULLISH.
 
YEN: Two pieces for the YEN this week.
On Sunday we have the Current Account number expected to rise from 1.42T to 1.59T.
On Monday we have the 30 year JGB auction.
COT data shows that large commercials substantially decreased their net short position from -54,641 to -27,090. We therefore alter our view from BEARISH to NEUTRAL.
 
AUD: A nothing week for the AUD with only one piece of news which takes place on Thursday when the RBA Governor speaks.
COT data shows that large commercials decreased their net long position from 50,874 to 41,630. We therefore remain SLIGHTLY BULLISH
 
CNY: There is nothing for the CNY this week as the markets are closed for the week due to the New Year celebrations. This will also affect liquidity in the other Asian markets.
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 moved from a net short position of -63,145 to a net long of 22,438. We therefore alter our view from SLIGHTLY BULLISH to BULLISH in the short term. 
GOLD: Large commercials increased their net short position from -59,833 to -77,355. As long as large commercials hold a net short position which is less than 100,000 we err on the side of bullishness. We however alter our view slightly from BULLISH to SLIGHTLY BULLISH.
SILVER: Virtually no change over the week as large commercials only very slightly increased their net short position from -45,124 to -45,474. We therefore remain SLIGHTLY BEARISH.
The gold:silver ratio narrowed slightly from 78.50 to 78.15 indicating slight silver outperformance 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 44,125 to 41,927. 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 continue to increase their net short position from -15,413 to -19,593. We therefore remain BEARISH.
CRUDE OIL: Large commercials decreased their net short position from -209,050 to -205,786. This remains very close to their smallest net short position since December 2012. We therefore remain BULLISH.
CAN$: Large commercials decreased their net long position from 81,197 to 70,420 which continues to be close to the 52 week rolling high achieved in August 2015 at 89,780. We therefore remain BULLISH.

THOUGHTS FOR NEXT WEEK
With very little in the way of economic data we have to focus on what the COT readings are telling us.
Therefore in order of preference:
for FX Stay long GBP, CAN$ and to a lesser extent AUD and EURO.
For risk add to SP500 on further weakness which may arise in the short term if crude falls below $30 which is very possible but should be a short term event.
Slowly reduce gold in favour of silver which should continue to outperform due to its industrial metal characteristics if the SP500 rallies.
 
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Stay nimble. Good luck trading.

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