Weekly Fundamentals - 09 July 2016

 
THE WEEK AHEAD FUNDAMENTALLY - KEY DATA TO WATCH OUT FOR
 

In conclusion to our report last week we wrote:
"This week will be driven by the political drivel from the UK and the employment data i s the USA at the end of the week.
We are entering the quieter summer months of trading now so any major political/economic news will have an exponential affect on thin markets.
We remain of the view that risk is once again a trading buy whilst precious metals are extremely overbought in the short term.
Any rise in risk will be USD positive especially against the commodity currencies and this is borne out by the COT data.
The GBP has the potential of making a surprise rapid rise especially once the political shenanigans are over and done with.
 
Therefore our recommendations for next week are:
Sell precious metals
Sell AUD and NZD
Trade risk on the long side through either the NADAQ100 or preferably through the RUSSELL2000."
 
Now let's see how we fared on our recommendations:
Selling both gold and silver was wrong as both continued their strong rallies
Selling both the commodity currencies AUD and NZD was also wrong
Trading risk on the long side was correct.
 
A poor week as the strong rallies in both gold and silver and to a lesser extent the commodity currencies AUD and NZD more than offset gains in our long risk on trades.
 
This week is relatively heavy in terms of data for most of the products we follow.
 
USD: The US$ Index rose last week.
We start on Wednesday with Crude Oil Inventories.
On Thursday we have PPI expected to decline from 0.4% to 0.3% and the usual Unemployment Claims figure which is thought to rise from 254,000 to 263,000.
Friday sees the release of both CPI and Core CPI. The latter excludes food and energy. Both numbers are anticipated to remain static at 0.2%.
This is followed by both Core Retail and Retail Sales. The former excludes car sales. The former number is thought to remain at 0.4% whilst the latter is expected to fall quite dramatically from 0.5% to 0.1%.
COT data shows that large commercials slightly increased their net short position in the US$ Index from -14,839 to -17,653. This remains close to a 52 week rolling extreme. We therefore remain VERY BULLISH.
 
EURO: The EURO fell against the USD last week.
There is no data for the EURO this week but naturally all attention will again remain focused on any developments between the EU and the UK.
COT data for the Euro shows that large commercials increased their net long position from +76,653 to +93,750. As this is the fourth week in a row that large commercials increase their net long position we alter our view from NEUTRAL to SLIGHTLY BULLISH.
 
GBP: The GBP fell against the USD last week. It continues to trade at a 31 year low. This is the third week of sustained, substantial falls.
A busy week in terms of data, political intrigues and continuing BREXIT fears.
BOE announcements dominate.
On Tuesday we have the Inflation Report Hearings.
On Thursday we the MPC Official Bank Rate Votes expected to substantially change from 0-0-9 to 0-9-0 meaning that all 9 MPC members will vote for a rate decrease. Also on Thursday we have the Monetary Policy Summary and the Official bank rate which is expected to fall from 0.50% to 0.25%.
Finally on Friday the BOE Governor speaks.
COT data shows that large commercials increased their net long position from +57,040 to +66,383. As this remains reasonably close to the 52 week extreme we therefore remain VERY BULLISH.
 
YEN: The YEN rose 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 -58,067 to -65,015 which is close to a 52 week extreme. We therefore remain BEARISH.
 
AUD: The AUD rose meaningfully against the USD last week.
Two items for the AUD this week both on Wednesday.
We start with the Employment Change number expected to fall from 17,900 to 10,100 and the Unemployment rate figure which is expected to rise from 5.7% to 5.8%.
COT data shows that large commercials decreased their net long position from -1,915 to -8,961. We therefore remain SLIGHTLY BEARISH.
 
CNY: There are three items of noteworthy news for the CNY this week.
We start on Tuesday with the Trade Balance figure which is estimated to fall slightly from 325B to 320B.
On Thursday we have both the Industrial Production number and GDP. The former is thought to decrease from 6.0% to 5.9% whilst the latter is also expected to contract from 6.7% to 6.6%.
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 decreased their net short position from-74,325 to -49,114 last week. We therefore alter our view from BEARISH to NEUTRAL.
GOLD: Large commercials increased their net short position from -326,321 to -340,207 last week. Now that large commercials hold a net short position which is greater than 100,000 we are bearish and as it is now once again above the 300,000 mark we remain VERY BEARISH.
SILVER: Large commercials increased their net short position from -95,201 to -98,768 last week. We therefore remain VERY BEARISH.
 
The gold:silver ratio decreased from 67.94 67.43 indicating very marginal silver outperformance last week.
 
COPPER: Copper is an important metal as it is a leading indicator for many commodities. Large commercials very marginally decreased their net long from +22,484 to +21,919 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 substantially increased their net short position from -86,879 to -103,815 last week. This is now no longer near the 52 week extreme. We therefore remain BEARISH.
CRUDE OIL: Large commercials very slightly decreased their net short position from -307,784 to -305,037 last week. This continues to be close to a 52 week extreme and we therefore remain BEARISH.
CAN$: Large commercials very slightly increased their net short position from -15,439 to -18,148 last week. We therefore remain BEARISH.
NZD: Large commercials decreased their net long position +278 and are now net short -629 last week. We therefore alter our view from NEUTRAL to SLIGHTLY BEARISH.
NASDAQ100: Large commercials decreased their net short position from -41,194 to -39,018. We therefore remain BEARISH.
RUSSELL2000: Large commercials increased their net long position from +37,197 to +38,314. We therefore remain BULLISH.

THOUGHTS FOR NEXT WEEK
We have made minimal changes this week.
We turn slightly bullish for the EURO, neutral for the S&P500 and slightly bearish for the NZD.
The week will once again be GBP driven with attention on the MPC rate vote. The question is will market participants regard this as bullish or regard it as a negative for risk assets and how will the GBP perform.
Three heavy weeks of falls may in fact result in a counter-intuitive rally.
Remember when the US embarked on its QE1, QE2 and QE3 initiatives the USD rallied with risk.
 
Therefore our recommendations for next week are:
Continue selling precious metals
Begin accumulating the Euro
Buy GBP
Stay long risk through the RUSSELL2000.

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