Weekly Fundamentals - 19 June 2016

 
THE WEEK AHEAD FUNDAMENTALLY - KEY DATA TO WATCH OUT FOR
 
 
In conclusion to our report last week we wrote:
"We have enjoyed good performance over the last few weeks. We have been far too long in the markets to believe that we are invincible and therefore anticipate problems ahead.
Whilst we would like to be long the precious metals, COT tells us otherwise.
Whilst we would like to be short risk, again COT tells us otherwise.
Therefore sentiment and hard facts are not aligned. We have found that when this contradiction arises the result is a heightened level of tension and volatility.
What will induce this volatility? The obvious answer is the UK referendum on leave/remain within the EU.
COT for the GBP is strongly telling us that to go short the GBP is a dangerous game to play. Soros tells us that a leave win has not been priced in. However Soros has been known to say one thing yet act in the opposite direction. "Do not as I say but as I do" springs to mind.
We follow COT.
 
Our recommendations for next week are therefore:
Buy risk in the form of the SP500
Continue selling both gold and silver. Particularly gold
Sell the NZD
Buy GBP"
 
Now let's see how we fared on our recommendations:
Buying risk in the form of the SP500 was wrong.
Selling both gold and silver was also wrong especially in the case of gold.
Selling the NZD was marginally wrong.
Buying GBP was correct as it closed the week virtually on its highs.
 
A distinctly poor week.
 
A very quiet week in terms of data but a very important one nonetheless as we have some central bank activity especially in the USA and the long awaited, much anticipated UK EU membership vote on Thursday with results due on Friday.
 
USD: The US$ Index rose last week.
On Tuesday and Wednesday the FED Chairperson testifies on the Semiannual Monetary Policy Report before the Senate Banking Committee, in Washington DC.
Also on Wednesday we have the Crude Oil Inventories number.
On Thursday we have the usual Unemployment Claims number thought to fall slightly from 277,000 to 271,000.
Finally on Friday we have Core Durable Goods Orders anticipated to decrease from 0.5% to 0.1%.
COT data shows that large commercials further decreased their net short position in the US$ Index from -14,704 to -9,434. This is now a 52 week rolling extreme. We therefore remain VERY BULLISH.
 
EURO: The EURO rose marginally against the USD last week.
We start on Tuesday when the German Federal Constitutional Court is due to announce a ruling regarding the constitutionality of the ECB's Outright Monetary Transactions policy.
This is followed by German Economic Sentiment data which is estimated to fall from 6.4 to 5.1.
Finally on Friday we have German Business Climate number which is also expected to fall from 0.5% to 0.1%.
COT data for the Euro shows that large commercials very marginally decreased their net long position from +79,538 to 70,705. As this is not close to a 52 week extreme we remain SLIGHTLY BEARISH.
 
GBP: The GBP rose meaningfully against the USD last week.
There is only one item for the GBP this week but what an item it is.
On Thursday the country votes in the referendum whether to remain or leave the EU.
Our thoughts on this and how to trade the GBP are below.
COT data shows that large commercials substantially decreased their net long position from +84,439 to +58,611. This remains reasonably close to the 52 week extreme so we therefore remain VERY BULLISH.
 
YEN: The YEN fell meaningfully against the USD last week.
There is no data for the YEN this week.
COT data shows that large commercials again increased their net short position from -43,861 to -57,384 which is close to a 52 week extreme. We therefore alter our view from SLIGHTLY BULLISH to BEARISH.
 
AUD: The AUD rose slightly against the USD last week.
Only one item for the AUD which is the Monetary Policy Meeting Minutes due to be released on Monday.
COT data shows that large commercials meaningfully decreased their net long position from +19,482 to +9,618. We therefore alter our view from BULLISH to NEUTRAL.
 
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 substantially decreased their net long position from +53,904 and are now net short -109,040. We therefore alter our view from SLIGHTLY BULLISH to BEARISH.
GOLD: Large commercials increased their net short position from -243,692 to -298,077 last week. Now that large commercials hold a net short position which is greater than 100,000 we are bearish and it is now once again near the 300,000 mark. We therefore remain alter our view from BEARISH to VERY BEARISH.
SILVER: Large commercials increased their net short position from -71,834 to -81,744. We therefore remain VERY BEARISH.
 
The gold:silver ratio increased from 73.69 to 74.30 indicating meaningful silver underperformance last week.
 
COPPER: Copper is an important metal as it is a leading indicator for many commodities. Large commercials increased their net long from +36,235 to +45,307 last week. Large commercials generally carry a net neutral position. This therefore remains an interesting situation on the long side and we therefore remain SLIGHTLY BULLISH.
US 30 YEAR BOND: Large commercials very slightly decreased their net short position from -117,505 to -109,005 last week. This remains close to a 52 week extreme. We therefore remain VERY BEARISH.
CRUDE OIL: Large commercials slightly decreased their net short position from -320,162 to -317,532 last week. This continues to be close to a 52 week extreme and we therefore remain BEARISH.
CAN$: Large commercials substantially increased their net short position from -29,402 tom -40,910 last week. This is a 52 week extreme We therefore alter our view from BEARISH to VERY BEARISH.
NZD: Large commercials substantially decreased their net short from -9,944 and are now net long +1,538 last week. We therefore alter our view from BEARISH to NEUTRAL as it is not yet at a 52 week extreme.
NASDAQ100: Large commercials meaningfully increased their net short position from -65,931 to -85,350. This is now close to a 52 week extreme. We therefore alter our view from BEARISH to VERY BEARISH.
RUSSELL2000: Large commercials continue to decrease their net long position from +24,252 to +10,447. We therefore alter our view from SLIGHTLY BULLISH to NEUTRAL.

THOUGHTS FOR NEXT WEEK
This week is GBP dominated.
Our view is very much that the remain camp will win by a margin. This will be GBP positive at least in the short term before political in-fighting in the ruling Conservative party takes hold.
Markets do not like political uncertainty and the GBP's gains whilst potentially meaningful may prove to be short lived.
We have made a number of changes this week to our medium term views in light of the COT data and as usual these form the backbone of our recommendations this week.
 
Our recommendations for next week are therefore:
Begin taking profits on risk assets
Continue selling both gold and silver.
Sell the CAN$ and YEN.
Buy GBP for a potentially meaningful post referendum rally. Take profits upon such a rally prior to the ascent of political uncertainty.
 
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Stay nimble. Good luck trading.

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