Weekly Fundamentals - 30 July 2016

 
THE WEEK AHEAD FUNDAMENTALLY - KEY DATA TO WATCH OUT FOR
 

In conclusion to our report last week we wrote:
"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"
 
Now let's see how we fared on our recommendations:
Selling precious metals continues to go against us making us even more relaxed as the impending fall will be significant

Accumulating the EURO was a very good call
Buying the GBP was likewise a wise decision
Begin reducing risk was also good as the indices we follow turned in a mixed performance
Selling commodity currencies was not a good call.
 
A mixed week in terms of results.

The week is busy for the AUD, GBP and the USD culminating in the US NonFarm Payroll data on Friday as this is the first week of the month and therefore the first Friday of the month.

USD: The US$ Index fell meaningfully last week.
A busy week for the USD.
We start on Monday with Manufacturing PMI which is expected to remain virtually the same from last month's 53.2 at 53.1.
On Wednesday we have the Non Manufacturing PMI thought to be 56.0 from the previous 56.5 and Crude Oil Inventories.
Thursday witnesses the usual Unemployment Claims figure estimated to remain virtually the same at 265,000.
Friday is the big day with Average Hourly Earnings thought to rise slightly from 0.1% to 0.2%, The NonFarm Payroll number expected at 180,000 from the previous 287,000 and finally the Unemployment Rate which is expected to come in slightly below last month's 4.9% at 4.8%.
COT data shows that large commercials increased their net short position in the US$ Index from -21,670 to -28,600. We alter our view from VERY BULLISH to BULLISH.
 
EURO: The EURO rose against the USD last week.
There is no meaningful data for the EURO this week.
COT data for the Euro shows that large commercials increased their net long position from +124,255 to +135,735. As this is the seventh week in a row that large commercials increase their net long position we remain BULLISH.
 
GBP: The GBP rose against the USD last week.  The GBP is still trading close to a 30 year low against the USD.
A busy week for the GBP.
We start on Monday with Manufacturing PMI expected to remain static at 49.1.
Tuesday sees Construction PMI thought to fall from 46.0 to 44.2.
Wednesday we have Services PMI also thought to remain unchanged at 47.4.
Thursday is the busy day. We start with the BOE Inflation Report. This is followed by the MPC Bank Rate Votes expected at 0-9-0 meaning that all nine members will vote to decrease interest rates. This is followed by the Official Bank rate which is expected to decline from 0.50% to 0.25%. Finally we have the BOE Governors speech.
COT data shows that large commercials increased their net long position from +100,587 to +106,742. As this is now a 52 week extreme we remain VERY BULLISH.
 
YEN: The YEN rose meaningfully against the USD last week.
There is no meaningful data for the YEN this week.

COT data shows that large commercials substantially decreased their net short position from -38,726 to -26,511 last week. We therefore alter our view from SLIGHTLY BEARISH to NEUTRAL.
 
AUD: The AUD rose substantially against the USD last week.
It is a busy week for the AUD.
On Monday we have Building Approvals thought to rise meaningfully from -5.2% to 0.9%. This is followed by the trade Balance estimated to improve slightly from -2.22B to -2.00B. We then have the Cash rate which is the interest rate charged on overnight loans between financial intermediaries anticipated to fall from 1.75% to 1.50%. Finally we have the RBA Rate Statement.
On Wednesday we have Retail Sales expected to rise from 0.2% to 0.3%.
Lastly on Thursday we have the RBA Monetary Policy Statement.
COT data shows that large commercials very slightly decreased their net short position from -34,232 to -33,827. We therefore remain BEARISH.
 
CNY: Only one item for the CNY this week which is the Manufacturing PMI number on Sunday anticipated to rise very slightly from 50.0 to 50.1.
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 increased their net short position from -139,710 to -153,097 last week. We therefore remain BEARISH.
RUSSELL2000: Large commercials substantially decreased their net long position from +15,533 to +4,972 which is a 52 week low. We therefore alter our view from NEUTRAL to BEARISH.
NASDAQ100: Large commercials again substantially increased their net short position from -101,513 to -124,568. This is the third week running of a substantial increase in the net short position and as it is now at a 52 week extreme. We therefore remain VERY BEARISH.
 
COMMODITIES:
GOLD: Large commercials decreased their net short position from -315,477 to -309,023 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 marginally increased their net short position from -106,255 to -107,123 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 increased their net short position from -891 to -3,695 last week. Large commercials generally carry a net neutral position. We therefore remain NEUTRAL.
CRUDE OIL: Large commercials slightly decreased their net short position from -296,002 to -284,341 last week. We therefore remain BEARISH.
 
The gold:silver ratio decreased from 67.49 to 66.55 indicating silver outperformance last week.
 
DEBT:
US 30 YEAR BOND: Large commercials slightly increased their net short position from -106,655 to -110,458 last week. We therefore remain BEARISH.
 
OTHER FX:
CAN$: Large commercials decreased their net short position from -27,679 to -22,944 last week. We therefore remain BEARISH.
NZD: Large commercials decreased their net short position from -4,100 to -1,223 last week. We therefore remain SLIGHTLY BEARISH.

THOUGHTS FOR NEXT WEEK
All our indictors regarding risk are now in negative territory so we must therefore turn outright bearish on risk.
We continue to stay bearish on the precious metal sector but that is beginning to slightly ease as we may be beginning to see large commercials reduce their long USD position in favour mainly of the GBP and EURO. It is a little too early to call the start of a meaningful USD correction. Perhaps next week's behaviour will help especially as we have the NonFarm Payroll data on Friday.
Otherwise the thin holiday markets will remain volatile so stay wary.
 
Therefore our recommendations for next week are:
Continue selling precious metals
Continue accumulating the Euro
Buy GBP
Continue reducing risk
 

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