Weekly Fundamentals - 03 June 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.
However we have numerous COT changes this week which all point to the following:
Risk is due to continue its move higher,
Precious metals are over extended on the upside in the short to medium term,
The 30 YEAR BOND is due a correction,
THE USD will bounce.
 
Therefore our recommendations for next week are:
Sell precious metals on any further strength and establish shorts
Buy risk
Sell the 30 YEAR BOND on any strength
Sell EURO and YEN
 
Now let's see how we fared on our recommendations:
Establishing shorts was perhaps slightly premature and therefore a bad call
Buying risk was correct
Selling the 30 YEAR BOND was outright wrong
Selling both the EURO and the YEN were wrong in both cases
 
A very poor week.
 
A quiet week in terms of data with some central bank activity.
 
USD:The US$ Index closed sharply lower finishing on its lows.
On Monday we have Non-Manufacturing PMI anticipated to be 57.3 from the previous 57.5.
On Wednesday we have Crude Oil Inventories.
Finally on Thursday we have the usual unemployment Claims figure estimated to be 241,000 from the previous 248,000.
COT data shows that large commercials slightly decreased their net short position in the US$ Index from -37,302 to -33,710. We therefore remain SLIGHTLY BEARISH.
 
EURO:The EURO closed sharply higher finishing on its highs.
On Thursday we have the Minimum Bid Rate which is the interest rate on the main refinancing operations that provide the bulk of liquidity to the banking system followed by the ECB Press Conference.
COT data for the Euro shows that large commercials increased their net short position last week from -81,570 to -93,640. This continues to be a 52 week extreme and we therefore remain VERY BEARISH.
 
GBP:The GBP closed sharply higher against the USD.
Three items for the GBP this week.
On Monday we have Services PMI expected at 55.1 from the previous 55.8.
Thursday is the big day when we have the Parliamentary Elections.
On Friday we have Manufacturing Production thought to rise from -0.6% to 0.8%.
COT data shows that large commercials increased their net long position from +22,479 to +33,465 last week. This continues to remain near a 52 week extreme so we remain NEUTRAL.
 
YEN:The YEN closed sharply higher against the USD last week.
Only one item for the YEN this week.
On Wednesday we have the GDP figure though to be 0.6% from the previous 0.5%.
COT data shows that large commercials slightly decreased their net long position from +68,837 to +67,024 last week. We therefore remain BULLISH.
 
AUD:The AUD closed virtually unchanged against the USD last week.
A reasonably busy week for the AUD.
On Tuesday we have the Cash Rate which is the interest rate charged on overnight loans between financial intermediaries. This is followed by the RBA Rate Statement and the GDP number which is anticipated to be 0.3% from the previous 1.1%.
On Wednesday we the Trade balance number estimated to fall from 3.11B to 1.99B.
COT data shows that large commercials slightly decreased their net long position from +8.515 to +7,282 last week. We therefore remain SLIGHTLY BULLISH.
 
CNY:Three items for the CNY this week.
On Wednesday we have the Trade Balance number expected to be 336B from 262B.
On Thursday we have both CPI and PPI. The former is expected to rise from 1.2% to 1.5% and the latter is expected to decline from 6.4% to 5.7%.
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: The S&P500 rose sharply closing near its highs last week. Large commercials increased their net short position from -16,826 to -21,000 last week. We remain SLIGHTLY BULLISH.
RUSSELL2000: The RUSSELL2000 rose sharply last week. Large commercials very slightly increased their net long position from +68,195 to +68,624 last week. This continues to be a 52 week extreme and we therefore remain BULLISH.
NASDAQ100:The NASDAQ100 rose sharply last week closing on its highs. Large commercials increased their net short position from -71,506 to -79,322 last week. We therefore remain SLIGHTLY BEARISH.
VIX: VIX fell sharply last week.
Large commercials increased their protection last week increasing their net long position from +102,873 to +118,701. This is no longer a 52 week extreme so remain NEUTRAL on risk protection and SLIGHTLY BULLISH on risk.
 
COMMODITIES:
GOLD: GOLD rose sharply last week closing near its highs. Large commercials increased their net short position from -174,291 to -183,219 last week. Now that large commercials hold a net short position which is lower than 200,000 we are bullish but as it is no longer a 52 week extreme we remain NEUTRAL.
SILVER: SILVER rose sharply last week. Large commercials increased their net short position from -57,337 to -71,082 last week. We therefore remain NEUTRAL.
COPPER: COPPER closed virtually unchanged last week. Copper is an important metal as it is a leading indicator for many commodities. Large commercials decreased their net short position from -10,729 to -9,563 last week. Large commercials generally carry a net neutral position. This is very close to a neutral position. We therefore remain NEUTRAL.
CRUDE OIL: CRUDE fell sharply last week. Large commercials slightly increased their net short position from -368,551 to -377,765 last week. We therefore remain SLIGHTLY BEARISH.
 
The gold:silver ratio decreased from 73.18 to 72.93 indicating silver underperformance last week.

DEBT:
US 30 YEAR BOND: The BOND rose sharply higher last week. Large commercials decreased their net short from -32,725 to -25,374 last week. This is close to a 52 week extreme. We therefore remain BEARISH.
 
OTHER FX:
CAN$: The CAN$ fell slightly against the USD last week. Large commercials slightly decreased their net long position from +112,104 to +109,374 last week. This continues to be close to a 52 week extreme and we therefore remain VERY BULLISH.
NZD:The NZD rose sharply closing on its highs last week. Large commercials decreased their net long position from +11,047 to +6,711 last week. We therefore remain SLIGHTLY BULLISH.
AUD/YEN:The AUD closed slightly lower in this pair. COT data for the AUD showed a slight deterioration and virtually unchanged for the YEN last week. This bodes well for risk in the short term.
 
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.
An interesting week in relatively thin summer trading.
Risk higher, safe haven assets as measured by the 30 YEAR BOND higher and precious metals higher. This is unusual and not sustainable. Which cracks first is the big question.
From our COT readings it would suggest that the precious metals are most vulnerable at this stage.
Thursday with the UK elections is the most interesting day. Polls suggest that the Conservative party will not win as big a majority as originally forecast. Whilst this may be true I believe it will still win a majority. Post the election minds can then re-focus on the upcoming BREXIT negotiations.
This may prove to be the turning point for both the GBP and the EURO versus the USD and the beginning of the corrective move lower in the precious metals.
 
Therefore our recommendations for next week are:
Sell precious metals on any further strength and establish shorts
Buy risk
Sell the 30 YEAR BOND on any strength
Sell EURO and GBP post the election result on Thursday. 
 
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