Weekly Fundamentals - 23 July 2016

 
THE WEEK AHEAD FUNDAMENTALLY - KEY DATA TO WATCH OUT FOR
 

In conclusion to our report last week we wrote:
"We have made a number of small changes this week.
We are beginning to turn slightly less sanguine about risk as two of our indicators have turned bearish. Only the RUSSELL2000 remains in slightly bullish territory.
In conjunction with this COT for the commodity currencies have worsened so we must remain wary of both them as well as commodities in general.
The 30 Year Bond is finally beginning to show some interest and this coincides with our fledgling negativity towards risk.
 
Therefore our recommendations for next week are:
Continue selling precious metals
Continue accumulating the Euro
Buy GBP
Begin reducing risk
Sell commodity backed currencies"
 
Now let's see how we fared on our recommendations:
Selling of precious metals was a good call especially in terms of silver
Buying the EURO was not a good call
Buying the GBP was also not good
Reducing risk was also premature
Selling commodity backed currencies including the AUD, CAD and NZD was a good call
 
All in all an average week depending on which recommendation you took and what weighting was applied.
 
A reasonably quiet week in terms of data at the height of the holiday season which should mean thin, illiquid markets with a potential for heightened volatility.
 
USD: The US$ Index rose last week.
A busy week for the USD.
We start this weekend with the G20 Meetings
On Tuesday we have the Consumer Confidence figure which is expected to fall from 98.0 to 95.6.
Wednesday sees the release of Core Durable Goods Orders which excludes transportation items. It is thought to make a good rebound from -0.3% to 0.3%. This is followed by Crude Oil Inventories, the FOMC Statement and the Fed Funds rate which is assumed to remain at 0.5%.
On Thursday we have the usual Unemployment Claims figure estimated to rise to 261,000 from 253,000.
Finally on Friday we have the GDP number anticipated to make a strong rise from 1.1% to 2.6%.
COT data shows that large commercials slightly increased their net short position in the US$ Index from -19.254 to -21,670. This continues to remain close to a 52 week rolling extreme. We therefore remain VERY BULLISH.
 
EURO: The EURO fell against the USD last week.
A reasonably quiet week for the EURO
This weekend is the G20 Meetings.
On Monday we have the German Business Climate number which is estimated to make a marginal fall from 108.7 to 107.7
On Friday we have the Bank Stress Test results. This stress test applies synthetic market conditions to the balance sheets of large banks in an effort to determine the banks' stability and capital reserve adequacy.
COT data for the Euro shows that large commercials increased their net long position from +108,149 to +124,255. As this is the sixth week in a row that large commercials increase their net long position we alter our view from SLIGHTLY BULLISH to BULLISH.
 
GBP: The GBP fell against the USD last week.  The GBP is still trading close to a 30 year low against the USD.
A quiet week for the GBP.
Besides the G20 Meeting this weekend we have the GDP number on Wednesday which is thought to be 0.5% from the previous 0.4%.

COT data shows that large commercials substantially increased their net long position from +83,138 to +100,587. As this is now a 52 week extreme we remain VERY BULLISH.
 
YEN: The YEN fell against the USD last week.
A busy week for the YEN.
This weekend we have the G20 Meeting.
On Thursday we start with Household Spending which is expected to rebound from -1.1% to -0.4%.
This is followed by Tokyo Core CPI expected at -0.4% from 0.5% and Retail Sales which is also expected to rebound from -2.1% to -1.2%. We also expect the Monetary Policy Statement.
On Friday we have the BOJ Outlook Report and the BOJ Press Conference.
COT data shows that large commercials decreased their net short position from -42,008 to -38,726 last week. We therefore remain SLIGHTLY BEARISH.
 
AUD: The AUD fell substantially against the USD last week.
besides the G20 Meeting there is only one item of note for the AUD this weekend.
On Tuesday we CPI expected to make a strong rebound from -0.2% to 0.4%.
COT data shows that large commercials significantly increased their net short position from -24,149 to -34,232. We therefore remain BEARISH.
 
CNY: Besides this weekend's G20 Meeting there is nothing newsworthy 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.
 
RISK:
S&P500: Large commercials substantially increased their net short position from -81,270 to -139,710 last week. We therefore remain BEARISH.
RUSSELL2000: Large commercials decreased their net long position from +26,925 to +15,533. We therefore alter our view from SLIGHTLY BULLISH to NEUTRAL.
NASDAQ100: Large commercials again substantially increased their net short position from -72,872 to -101,513. This is the second week running of a substantial increase in the net short position and as it now stands very close to a 52 week extreme we alter our view from BEARISH to VERY BEARISH.
 
COMMODITIES:
GOLD: Large commercials decreased their net short position from -325,452 to -315,477 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 continue to remain VERY BEARISH.
SILVER: Large commercials increased their net short position from -100,120 to -106,255 last week. We therefore remain VERY BEARISH.
COPPER: Copper is an important metal as it is a leading indicator for many commodities. Large commercials very significantly decreased their net long from +15,631 and are now net short at -891 last week. Large commercials generally carry a net neutral position. We therefore alter our view from SLIGHTLY BULLISH to NEUTRAL.
CRUDE OIL: Large commercials slightly increased their net short position from -293,352 to -296,002 last week. This continues to be close to a 52 week extreme and we therefore remain BEARISH.
 
The gold:silver ratio decreased from 67.43 to 67.49 indicating very marginal silver underperformance last week.
 
DEBT:
US 30 YEAR BOND: Large commercials slightly increased their net short position from -98,813 to -106,655 last week. We therefore remain BEARISH.
 
FX:
CAN$: Large commercials increased their net short position from -22,521 to -27,679 last week. We therefore remain BEARISH.
NZD: Large commercials increased their net short position from -3,655 to -4,100 last week. We therefore remain SLIGHTLY BEARISH.


THOUGHTS FOR NEXT WEEK
Like last week we have become less sanguine about risk at these levels. Currently only one of the risk products we follow, the RUSSELL2000 is neutral, the other two are outright bearish.
Commodities  are likewise not looking too good as the leading ones, silver and copper turn increasingly negative.
On the FX front we may be about to head into a USD short term correction but that is just a hunch and not based on COT. having said that both the EURO and the GBP are looking more and more attractive.
 
Therefore our recommendations for next week are:
Continue selling precious metals
Continue accumulating the Euro
Buy GBP
Begin reducing risk
Sell commodity backed currencies

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