Weekly Fundamentals - 12 March 2016

 
THE WEEK AHEAD FUNDAMENTALLY - KEY DATA TO WATCH OUT FOR
 
In conclusion to last week's report we wrote:
"The main thing that stands out for next week is the extreme bearishness that will engulf precious metals especially gold. Those long should either hedge or drastically reduce their positions. Traders should look to short. The fall will be deep and swift.
In FX stay long GBP, short commodity currencies and the YEN. In risk begin to think about booking long profits.
I foresee crude consolidating at these levels for the next 2/3 weeks which will have a short term negative bias on risk. This period should therefore be used to start a slow accumulation on any meaningful dips prior to crude resuming its ascendency towards the $40's level."
 
Now let us see how we fared on our trade recommendations.
We said that gold would suffer. We were right. Even though gold performed well and pulled in fresh longs they suffered at the end of the week.
We said to remain long the GBP and were also right. Our call on YEN was neither right nor wrong as it closed virtually unchanged but our calls on the commodity backed currencies was only half right as the AUD rallied and the NZD fell.
I anticipated crude to consolidate for the next few weeks and whilst it gained it did not manage to break the $40 level.
 
We therefore got half our currency calls right, our gold trade right and the crude trade very slightly wrong.
A reasonable week.

This week's data is virtually all focused on the USD with a little bit thrown in for the GBP and the AUD. There is also a great deal of Central bank activity. COT data makes for very interesting reading.

USD: The US$ Index fell meaningfully on the week.
A very busy week.
We start on Tuesday when we have both Core Retail sales and Retail Sales. The former excludes car sales and is anticipated to fall from last month's 0.1% to -0.2%. Retail Sales is also expected to fall from 0.2% to -0.1%. We also have PPI which is thought to be -0.1% from last month's 0.1%.
Wednesday is a very busy day. We have both Core CPI and CPI. The former excludes food and energy and is expected to fall from 0.3% to 0.1% whilst CPI is anticipated to move from 0.0% to -0.2%. We also have Building Permits estimated to remain unchanged at 1.20m. Finally the Crude Oil Inventory number which will give short term direction to crude.
The figures are eclipsed by the FED. We have the FOMC Economic Projections, the FOMC Statement, the FED Funds rate expected to remain unchanged at 0.50% and finally the FOMC Press Conference.
On Thursday we have the FED Manufacturing Index and the usual Unemployment Claims figure guesstimated to be 267,000.
The week ends on Friday with Consumer Sentiment which is expected to rise from 91.7 to 92.3.
COT data shows that large commercials reduced their net short position in the US$ Index from -31,033 to -30,119. We therefore remain SLIGHTLY BULLISH.
 
EURO: The EURO rose strongly against the USD last week.
There is absolutely no economic data of note for the EURO this week.
COT data for the Euro shows that large commercials continued to increase their net long position from 86,498 to 89,999. We therefore remain NEUTRAL.
 
GBP: The GBP rose meaningfully against the USD last week.
A reasonable amount of data for the GBP.
On Wednesday we have Average Earnings Index which is expected to rise from 1.9% to 2.0%.
This is followed by the Claimant Count Change which is expected to decrease by 9,000 after last month's fall of 14,000.
Finally we have the Annual Budget Release.
On Thursday we have the MPC Official bank rate Votes expected to remain steady at 0-0-9 meaning that all members vote for no change in interest rates.
This is followed by the Monetary Policy Summary and the Official bank rate which is expected to remain at 0.50%.
COT shows that large commercials increased their net long position from 62,384 to 72,682 which is a 52 week rolling high. We therefore remain BULLISH.
 
YEN: Whilst the YEN had a volatile week against the USD it closed the week virtually unchanged.
Three items for the YEN all of which are BOJ driven.
On Monday we have the Monetary Policy Statement.
On Tuesday we have the BOJ Press Conference.
Finally on Thursday we have the Monetary Policy Meeting Minutes.
COT data shows that large commercials continue to increase their net short position from -58,622 to -65,310. This continues to be a 52 week low. We therefore remain BEARISH.
 
AUD: The AUD rose meaningfully against the USD last week.
A reasonable amount of data for the AUD.
On Monday we have the Monetary Policy Meeting Minutes.
On Wednesday we have two items Both of which are important. Firstly we have the Employment Change number which is expected to rise by 12,300 from last month's fall 0f 7,900.
This is followed by the Unemployment rate which is expected to remain unchanged at 6.0%.
COT data shows that large commercials continue to decrease their net short position from -10,617 to -33,359. This is the third time in 52 weeks that they are net short and represents their biggest short position over the last year. We therefore remain 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 continue to increase their net short from -48,604 to -84,459. We therefore alter our view from BULLISH to NEUTRAL.
GOLD: Large commercials again increased their net short position from -171,431 to -195,372. Now that large commercials hold a net short position which is greater than 100,000 we are bearishness. We therefore remain SUPER BEARISH.
SILVER: Large commercials increased their net short position from -65,237 to -70,815. We therefore remain BEARISH.
 
The gold:silver ratio narrowed from 81.18 to 80.81 indicating strong silver outperformance for the week.
 
COPPER: Copper is an important metal as it is a leading indicator for many commodities. Large commercials substantially decreased their net long position from 26,263 to 3,656. Large commercials generally carry a net neutral position and therefore their current net long is significant. We therefore alter our view from SLIGHTLY BULLISH to NEUTRAL.
US 30 YEAR BOND: Large commercials substantially increased their net short position from -32,198 to -58,590. This is a 52 week rolling extreme. We therefore alter our view from BEARISH to VERY BEARISH.
CRUDE OIL: Large commercials very slightly increased their net short position from -212,878 to m-241,089. This remains very close to the 52 week extreme and close to their smallest net short position since December 2012. Due to the recent price surge we however alter our view from SUPER BULLISH to BULLISH.
CAN$: Large commercials continue to decrease their net long position from 37,575 to 27,220. We therefore remain SLIGHTLY BEARISH.
NZD: Large commercials continue to decrease their net long position from 5,886 to 2,225. We therefore remain SLIGHTLY BEARISH.
NASDAQ100: Large commercials decreased their net short position from -9,186 to -2,622. We therefore remain NEUTRAL.

THOUGHTS FOR NEXT WEEK
I continue to believe that crude is the main driver of risk at this stage. the recent crude rally is due for a consolidation/short term correction and envisage the low 30's being re-visited over the next few weeks prior to a resumption of the rally to the mid 40's by the middle of the year.
This will adversely affect risk as measured by the SP500 at least in the short term.
Gold is looking heavy, heavy to the extent that a good sized fall of $100-150 fall is a definite possibility in the short term.
The US30 year bond remains a sell.
On the FX side COT is telling us clearly that the USD as measured by the USD Index is headed higher in the short term. It will try but most likely fail to make new highs before resuming its downward trajectory.
Therefore for next week continue to reduce risk on any further move higher, short gold, buy the USD against the commodity currencies and short YEN.
 
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Stay nimble. Good luck trading.

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