Weekly Fundamentals - 19 February 2016

 
THE WEEK AHEAD FUNDAMENTALLY - KEY DATA TO WATCH OUT FOR
 
In conclusion to last week's report we wrote:
"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."
 
Now let us see how we fared on our trade recommendations.
The USD as measured by the USD Index did indeed enjoy a reasonably meaningful rally opening at 96.05 and closing at 96.60 having risen to high of 97.18. So we got this right.
Commodity currencies as measured by the AUD, NZD, CAN$ and to a lesser extent the GBP were mixed. The AUD closed slightly higher, the NZD did fall very slightly, the CAN$ rose very slightly and the GBP fell the most. Therefore we got 2 correct and 2 wrong.
We got our call on risk rising very right. The SP500 rose meaningfully on the week.
However our bullish call on crude proved incorrect. Crude fell on the week.
 
Therefore we got 4 correct and 3 wrong. Enough to have made money.
 
This week is very, very light in terms of economic data so the COT reports are of even more importance.

USD:On Tuesday we have the Consumer Confidence number which is expected to fall slightly from 107.3 to 107.0. This is followed by Existing Home Sales which is also expected to fall slightly from 5.46M to 5.40M.
On Wednesday we have Crude Inventories which will be closely followed. We also have New Home Sales expected to fall from 544,000 to 521,000.
On Thursday we have the customary Unemployment Claims number estimated at 271,000 from last week's 262,000. Core Durable Goods Orders follow expected to rise from -0.1% last month to 0.1%.
Lastly on Friday we have the GDP number thought to be 0.5% from 0.7%.
COT data shows that large commercials reduced their net short position in the US$ Index from -39,580 to -35,176. We therefore remain NEUTRAL.
 
EURO: We start on Monday with German Manufacturing PMI. This is expected to fall slightly from 52.3 to 52.0.
Tuesday sees the release of German GDP unchanged at 0.3% and the German Business Climate Index with an expected range of 106.7-107.0 from last month's 107.3.
Finally on Thursday we have CPI thought to remain unchanged at 0.4%.
COT data for the Euro shows that large commercials continue to decrease their net long position from 74,024 to 53,764. This is a rolling 52 week low. We therefore alter our view from NEUTRAL to SLIGHTLY BEARISH.
 
GBP:Only one item of note for the GBP this week which is the GDP number on Thursday which is expected to remain unchanged at 0.5%.
 COT shows that large commercials very slightly increased their net long position from 54,709 to 57,559. We therefore remain BULLISH.
 
YEN:On Thursday we have Tokyo Core CPI expected to come in at 0.0% from last month's -0.1%.
There is no further data of importance.
COT data shows that large commercials increased their net short position from -40,801 to -51,459. This is very close to being a 52 week low. We therefore remain BEARISH.
 
AUD:Also only one item for the AUD.
On Wednesday we have Private Capital Expenditure expected to move from -9.2% last month to -3.0% this month.
COT data shows that large commercials continue to decrease their net long position from 14,479 to 5,308. They are essentially flat. We therefore alter our view from NEUTRAL to SLIGHTLY BEARISH.
 
CNY:There is no data for the CNY this week.
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 from -25,772 to -82,753. We therefore alter our view from SLIGHTLY BULLISH to NEUTRAL, however see our comment below.
GOLD:Large commercials again substantially increased their net short position from -104,923 to -131,984. Now that large commercials hold a net short position which is greater than 100,000 we err on the side of bearishness. We therefore remain BEARISH.
SILVER:Large commercials continue to increase their net short position from -61,709 to -70,062. This is a new rolling 52 week low. We therefore remain BEARISH.
 
The gold:silver ratio widened from 78.60 to 80.08 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 30,764 to 29,061. Large commercials generally carry a net neutral position and therefore their current net long is significant. However as this position is no longer close to a 52 week high to err on the side of caution and alter our view from BULLISH to SLIGHTLY BULLISH.
US 30 YEAR BOND: Large commercials substantially increased their net short position from -11,419 to -24,328. We remain BEARISH.
CRUDE OIL:Large commercials substantially decreased their net short position from -200,886 to -168,995. This is a 52 week extreme and is their smallest net short position since December 2012. We therefore alter our view from BULLISH to SUPER BULLISH.
CAN$: Large commercials continue to decrease their net long position from 59,638 to 52,387. We therefore remain NEUTRAL.
AUD: Large commercials substantially reduced their net long position from 14,479 to 5,308 which is very close to a rolling 52 week low. We therefore remain SLIGHTLY BEARISH.
NZD: Large commercials very slightly reduced their net long position from 9,999 to 9,866. We therefore remain NEUTRAL.
 
This week we are adding the NASDAQ100 to the list of products we conduct COT analysis. Large commercials moved from a net short position of -9,139 to a net long of 7,883. This is only the fourth time they have been long over the last 52 weeks and the first time in 21 weeks. We therefore instigate our COT analysis for the NASDAQ100 with a BULLISH view.

THOUGHTS FOR NEXT WEEK
Whilst the COT for risk as measured by the SP500 shows that large commercials have increased their net short position other factors also have an important role to play.
The fact that large commercials are carrying an extreme bullish position in crude, the fact that the NASDAQ100 COT shows them to be net long for the first time in 21 weeks and the fact that all alterations we have had to make for currencies have been negative strongly points to risk having momentum on its side.

Therefore for next week we would add the SP500, continue to favour the USD against all commodity backed currencies, continue to like but not love the GBP, worry about the YEN and short both gold and silver.

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