Weekly Fundamentals - 15 May 2017

 
THE WEEK AHEAD FUNDAMENTALLY - KEY DATA TO WATCH OUT FOR
 
In conclusion to our report three weeks ago we wrote:
“The USD continues to fail to make new highs
This continues to bode well for precious metals in the medium to long term
Risk would now appear to be over extended and both short and medium term bias is now beginning to turn towards caution
The COT for the EURO is indicating that a positive French election outcome is already priced into the market and therefore any reduction in the lead of Macron over Le Pen will be dealt with harshly for EURO bulls irrespective of the fact that Macron wins
Whilst this may be viewed as USD bullish it would be far better to book profits on short precious metal positions with a view to going long very slowly
 
Therefore our recommendations for next week are:
Take profits on short precious metal positions and begin slowly accumulating
Sell risk on any further strength
Buy the 30 YEAR BOND on any weakness
Buy the CAN$
We continue to predict a 20% in risk over the following summer months.”
 
Now let's see how we fared on our recommendations:
Covering precious metal shorts was a good call as both gold and silver moved marginally higher
Selling risk into strength was also good
Buying the 30 YEAR BOND on weakness was granted another opportunity as it fell very marginally
Buying the CAN $ was premature
 
A reasonable week.
 
A relatively quiet week in terms of data.
 
This week we instigate COT findings on VIX. A good description of what VIX is and what it measures can be found here.
Here is a MACRO article I wrote on the VIX a few years ago which is still relevant today.
 
USD:The US$ Index closed strongly higher last week.
We start on Tuesday with Building Permits expected to be unchanged at 1.27M.
On Wednesday we have Crude Oil Inventories.
On Thursday we have the usual Unemployment Claims figure estimated to rise from 236,000 to 240,000.
COT data shows that large commercials slightly decreased their net short position in the US$ Index from -45,492 to -41,969 last week. We therefore remain SLIGHTLY BEARISH.
 
EURO:The EURO fell sharply against the USD last week.
Only one item for the EURO this week.
On Thursday the ECB President speaks.
COT data for the Euro shows that large commercials significantly decreased their net long position last week from +828 and are now net short -33,199. We therefore remain BEARISH.
 
GBP:The GBP closed sharply lower against the USD last week.
A busy week for the GBP.
On Monday the Prime Minister speaks.
CPI on Tuesday is expected to rise from 2.3% to 2.6%.
On Wednesday we have the Average Hourly Earnings Index thought to rise from 2.3% to 2.4%.
On Thursday Retail sales is anticipated to rise from -1.8% to 1.2%.
COT data shows that large commercials significantly decreased their net long position from +78,532 to +43,890 last week. We therefore alter our view fromBULLISH toSLIGHTLY BULLISH.
 
YEN:The YEN rose reasonably against the USD last week.
There is only one item for the YEN this week.
On Wednesday we have the GDP number thought to rise from 0.3% to 0.4%.
COT data shows that large commercials increased their net long position from +42,119 to +57,893 last week. We therefore remain SLIGHTLY BULLISH.
 
AUD:The AUD fell against the USD but closed well off its lows last week.
On Monday we have the Monetary Policy Meeting Minutes.
On Wednesday we have the Employment Change figure expected to fall from 60,900 to 4,500 and the Unemployment Rate figure thought to remain unchanged at 5.9%.
COT data shows that large commercials significantly decreased their net short position from -40,638 to -16,057.We therefore alter our view from BEARISHtoSLIGHTLY BEARISH.
 
CNY:Two items for the CNY this week.
On Sunday had Industrial Production which was forecasted to be 7.0% and came in at 6.5% and Fixed Asset Investment expected to be 9.1% which was 8.9%. Therefore both numbers disappointed.
There is no COT data for the CNY.
 
COT data of note on products we regularly comment on in our DAILY REPORTSand WEEKLY BONUS VIDEOSand for those products which show large commercials with extreme net positions.
 
RISK:
S&P500: The S&P500 fell last week. Large commercials substantially increased their net short position from -24,540 to -87,994 last week. We therefore remainBEARISH.
RUSSELL2000: The RUSSELL2000 fell sharply last week. Large commercials massively increased their net long position from +427 to +29,787 last week. We thereforealter our view fromNEUTRAL toSLIGHTLY BULLISH.
NASDAQ100:The NASDAQ100 rose strongly last week closing on its highs. Large commercials slightly decreased their net short position from -104,201 to -91,864 last week. We therefore remainSLIGHTLY BEARISH.
VIX: We start our COT analysis on the VIX with a 52 week extreme as large commercials continue to buy protection. Large commercials currently have a net long position of +115,259. We are therefore bullish on risk protection.
 
COMMODITIES:
GOLD: GOLD rose marginally last week. Large commercials slightly decreased their net short position from -203,986 to -164,422 last week. Now that large commercials hold a net short position which is lower than 200,000 we are bullish. We therefore alter our view from BEARISHtoSLIGHTLY BULLISH.
SILVER: SILVER rose marginally last week. Large commercials decreased their net short position from -86,574 to -69,269 last week. We therefore remainBEARISH.
COPPER: COPPER closed lower last week. Copper is an important metal as it is a leading indicator for many commodities. Large commercials increased their net short position from -19,482 to -8,300 last week. Large commercials generally carry a net neutral position. We therefore remainBEARISH.
CRUDE OIL: CRUDE rose sharply last week. Large commercials decreased their net short position from -409,860 to -339,794 last week. We therefore alter our view from VERY BEARISH toSLIGHTLY BEARISH.
 
The gold:silver ratio decreased from 75.29 to 74.21 indicating silver outperformance last week.

DEBT:
US 30 YEAR BOND: The BOND fell marginally last week. Large commercials slightly decreased their net long position from +10,378 to +9,277 last week. We therefore remain SLIGHTLY BULLISH.
 
OTHER FX:
CAN$: The CAN$ fell last week. Large commercials very significantly increased their net long position from +61,470 to +99,276 last week. This is now a 52 week extreme and we thereforealter our view fromSLIGHTLY BULLISH toVERY BULLISH.
NZD:The NZD fell last week. Large commercials slightly decreased their net long position from +14,227 to +13,108 last week. We therefore remainSLIGHTLY BULLISH.
AUD/YEN:This pair closed virtually unchanged last week. COT for the AUD significantly improved and improved for the YEN indicating that the short term bias is slowly beginning to alter from ‘risk on’ to ‘risk off’.
 
THOUGHTS FOR NEXT WEEK
The USD continues to fail to make new highs
This continues to bode well for precious metals in the medium to long term
Risk would now appear to be over extended and both short and medium term bias is now beginning to turn towards caution
COT for commodity backed currencies are improving especially for the CAN$ which is at a 52 week extreme.
Our commencement of COT analysis for VIX shows that large commercials are worried about risk
 
Therefore our recommendations for next week are:
Buy precious metals on any weakness
Sell risk on any further strength
Buy the 30 YEAR BOND on any weakness
Buy the CAN$
We continue to predict a 20% in risk over the following summer months as determined by VIX.
 
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