Weekly Fundamentals - 13 February 2016

 
THE WEEK AHEAD FUNDAMENTALLY - KEY DATA TO WATCH OUT FOR
 
In conclusion to last week's report we wrote:
"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."
 
Now let us see how we fared on our trade recommendations.
We were more or less right on all our FX calls. GBP, CAN$ and AUD all closed very marginally higher whilst the EURO had a strong week.
We were spot on regarding the SP500 and crude. Crude did fall to the mid 20's and the SP500 followed it lower. Crude then rallied and the SP500 again followed it higher.
We were incorrect on our gold/silver trade. Gold rallied 6.3% and silver 5.2%.
 
Therefore we got 2 out of 3 correct. Not too bad.
 
There was little in the way of economic data last week, however this week is different with a full set for everything we follow.
Again COT data is highly important.
 
USD:We start on Wednesday with Building Permits expected to rise marginally from 1.20mn to 1.21mn. This is followed by PPI unchanged at -0.20% and then the all important FOMC Meeting Minutes.
Thursday we have the FED Manufacturing Index which ought to show a slight improvement from last month's -3.5 to -2.9. This is followed by the usual Unemployment Claims estimated at 275,000 from 269,000.
Most importantly we have the Crude Oil Inventories number. This will be a closely followed figure and give very short term direction to both crude itself and risk overall.
On Friday we have both CPI and Core CPI. The former is expected to be unchanged at -0.1% and the latter which excludes food and energy is expected to rise from 0.1% to 0.2%.
COT data shows that large commercials substantially reduced their net short position in the US$ Index from 52,559 to 39,580. We therefore alter our view fromSLIGHTLY BEARISH to NEUTRAL.
 
EURO: A light week in terms of data which all take place at the beginning of the week.
On Monday the ECB President speaks.
On Tuesday there is the German Constitutional Court Ruling on whether the constitutionality of the ECB's Outright Monetary Transactions policy (OMT). Expected to be a formality.
Also on Tuesday we have German Economic Sentiment number which is expected to be horrible falling from 10.2 to 0.1.
COT data for the Euro shows that large commercials substantially decreased their net long position from 111,997 to 74,024. We therefore alter our view fromSLIGHTLY BULLISH to NEUTRAL.
 
GBP:Four items for the GBP this week.
On Tuesday we have CPI expected to rise from 0.2% to 0.3%.
Wednesday sees both the Average Earnings Index expected to fall from 2.0% to 1.9% and Claimant Count Change improving from -43000 to -29000.
Lastly on Friday we have Retail Sales thought to improve from -1.0% to 0.8%.
Large commercials substantially decreased their net long position from 71,746 to 54,709. We therefore alter our view fromSUPER BULLISH to BULLISH.
 
YEN:Only one item for the YEN this week.
On Sunday night we have the GDP number expected to fall from a positive 0.3% to a negative 0.3%.
COT data shows that large commercials substantially increased their net short position from -27,090 to -40,801. We therefore alter our view from NEUTRAL to BEARISH.
 
AUD:On Monday we have the Monetary Policy Meeting Minutes.
Wednesday is a big day with both the Employment Change figure expected to rise from -1,000 to a positive 12,900. This is followed by the Unemployment rate number expected to remain unchanged at 5.8%.
COT data shows that large commercials massively decreased their net long position from 41,630 to 14,479. We therefore alter our view from SLIGHTLY BULLISH to NEUTRAL
 
CNY:China was closed all of last week for the New Year celebrations. This week there is only one item which is the Trade Balance number on Sunday night expected to rise slightly from 382Bn to 389Bn.
The rest of the world will be closely watching how the Chinese markets perform.
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 long of 22,438 to a net short of -25,772. We therefore alter our view fromBULLISH toSLIGHTLY BULLISH in the short term.
GOLD:Large commercials substantially increased their net short position from -77,355 to -104,923. Now that large commercials hold a net short position which is greater than 100,000 we err on the side of bearishness. We therefore alter our view slightly from SLIGHTLY BULLISH to BEARISH.
SILVER:Large commercials continue to increase their net short position from -45,474 to -61,709. We therefore alter our view from SLIGHTLY BEARISH to BEARISH.
The gold:silver ratio widened from 78.15 to 78.60 indicating silver underperformance for the week.
COPPER: Copper is an important metal as it is a leading indicator for many commodities. Large commercials decreased their net long position from to 41,927 to 30,764. Large commercials generally carry a net neutral position and therefore their current net long which continues to be close to the rolling 52 week high is significant. We therefore remain BULLISH.
US 30 YEAR BOND: Large commercials reduced their increase their net short position from -19,593 to -11,419. We remain BEARISH.
CRUDE OIL:Large commercials decreased their net short position from -205,786 to -200,886. This remains very close to their smallest net short position since December 2012. We therefore remain BULLISH.
CAN$: Large commercials substantially decreased their net long position from 70,420 to 59,638. We therefore alter our view from BULLISH to NEUTRAL.
We add both the AUD and NZD to our COT analysis this week to see whether the move in the USD particularly against commodity backed currencies is acroos the board.
AUD: Large commercials substantially reduced their net long position from 41,630 to 14,479 which is very close to a rolling 52 week low. We therefore instigate our analysis as BEARISH.
NZD: Large commercials very slightly reduced their net long position from 10,539 to 9,999. We instigate our analysis with a NEUTRAL view.

THOUGHTS FOR NEXT WEEK
Last week we wrote that crude was the important product to follow as it would direct the direction of risk.
We wrote that whilst there was every chance that it could fall to the mid 20's level the rebound from there would be strong. We have reached that level and risk is now due a strong corrective bounce as crude makes its move to the upside.
All our view changes indicate that the USD is due a strong rebound, commodity currencies will fall, risk will rise and crude oil will rally.
 
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