Weekly Fundamentals - 12 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.
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.
 
Now let's see how we fared on our recommendations:
A great call to sell precious metals and go short
Buying risk was neither here nor there
Selling the 30 YEAR BOND was brilliant
Selling both the EURO and the GBP was great.
 
An exceptionally good week.
 
A busy week in terms of data with some heavyweight Central bank activity.
 
USD:The US$ Index closed sharply higher.
On Tuesday we have PPI anticipated to be 0.0% from the previous 0.5%.
On Wednesday we have both CPI and Core CPI which excludes food and energy. The former is thought to be unchanged at 0.2% and the latter is expected to rise from 0.1% to 0.2%.
This is followed by Core Retail S which excludes cars and Retail Sales. The former is anticipated to decline from 0.3% to 0.2% whilst the latter is estimated to make a big fall from 0.4% to 0.1%.
More importantly we have the FOMC Economic Projections, the FOMC Statement, the FED Funds Rate expected to rise from 1.00% to 1.25% and finally the all important FOMC Press Conference.
Thursday sees the release of the usual Unemployment Claims figure estimated to be 241,000 from the previous 245,000.
Finally on Friday we have Building Permits thought to be 1.25m from the previous 1.23M.
COT data shows that large commercials slightly increased their net short position in the US$ Index from -33,710 to -34,272. We therefore remain SLIGHTLY BEARISH.
 
EURO:The EURO closed sharply lower against the USD last week.
There is no data for the EURO this week.
COT data for the Euro shows that large commercials slightly decreased their net short position last week from -93,640 to -91,005. This continues to be close to a 52 week extreme and we therefore remain VERY BEARISH.
 
GBP:The GBP closed sharply lower against the USD last week.
On Tuesday we have CPI expected to remain unchanged at 2.7%.
On Wednesday we have the Average Earning Index also expected to remain unchanged at 2.4%.
Thursday is the big day. We start with Retail Sales anticipated to decline markedly from 2.3% to -0.9%. This is followed by the MPC Official bank Rate Votes expected to remain unchanged at 1-0-7, the Monetary Policy Summary and finally the Official Bank rate thought to remain at 0.25%.
Finally the BOE Governor speaks.
COT data shows that large commercials increased their net long position from +33,465 to +38,748 last week. This continues to remain near a 52 week extreme so we remain NEUTRAL.
 
YEN:The YEN closed marginally higher against the USD last week.
On Thursday we have the Monetary Policy Statement.
On Friday we have the BOJ Policy rate which is the interest rate levied on excess current account balances held at the BOJ expected to remain at -0.1% and the BOJ Press Conference.
COT data shows that large commercials decreased their net long position from +67,024 to +62,302 last week. We therefore remain BULLISH.
 
AUD:The AUD closed rose very strongly against the USD last week.
On Wednesday we have the Employment Change number expected to be 9,700 from the previous 37,400 and the Unemployment rate expected to remain at 5.7%.
COT data shows that large commercials increased their net long position from +7,282 to +8,219 last week. We therefore remain SLIGHTLY BULLISH.
 
CNY:Two items for the CNY this week.
On Tuesday we have Industrial production expected to decline from 6.5% to 6.4% and Fixed Asset Investment expected to decline from 8.9% to 8.8%.
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 very marginally last week. Large commercials increased their net short position from -21,000 to -34,932 last week. We therefore alter our view from SLIGHTLY BULLISH to NEUTRAL.
RUSSELL2000: The RUSSELL2000 rose sharply last week. Large commercials very significantly decreased their net long position from +68,624 to +28,974 last week. We therefore alter our view from BULLISH to SLIGHTLY BULLISH.
NASDAQ100:The NASDAQ100 fell sharply last week. Large commercials increased their net short position from -79,322 to -94,876 last week. We therefore alter our viewfrom SLIGHTLY BEARISH to BEARISH.
VIX: VIX rose reasonably last week.
Large commercials increased their protection last week increasing their net long position from +118,701 to +133,624. This is once again very close to a 52 week extreme so alter our view from NEUTRAL on risk protection and SLIGHTLY BULLISH on risk to BULLISH on risk protection and BEARISH on risk.
 
COMMODITIES:
GOLD: GOLD fell sharply last week. Large commercials increased their net short position from -183,219 to -216,354 last week. Now that large commercials hold a net short position which is higher than 200,000 we are bearish so we alter our view from NEUTRALto BEARISH.
SILVER: SILVER fell sharply last week. Large commercials increased their net short position from -71,082 to -75,624 last week. We therefore remain NEUTRAL.
COPPER: COPPER rose very strongly last week. Copper is an important metal as it is a leading indicator for many commodities. Large commercials increased their net short position from -9,563 to -13,326 last week. Large commercials generally carry a net neutral position. This is no longer a neutral position. We therefore alter our view from NEUTRAL to SLIGHTLY BEARISH.
CRUDE OIL: CRUDE fell sharply last week. Large commercials increased their net short position from -377,765 to -390,819 last week. We therefore remain SLIGHTLY BEARISH.
 
The gold:silver ratio increased from 72.93 to 74.38 indicating strong silver underperformance last week.

DEBT:
US 30 YEAR BOND: The BOND fell sharply last week. Large commercials decreased their net short from -25,374 to -22,407 last week. This is close to a 52 week extreme. We therefore remain BEARISH.
 
OTHER FX:
CAN$: The CAN$ rose strongly against the USD last week. Large commercials slightly decreased their net long position from +109,374 to +105,838 last week. This continues to be close to a 52 week extreme and we therefore remain VERY BULLISH.
NZD:The NZD rose sharply against the USD last week. Large commercials decreased their net long position from +6,711 to +1,981 last week. We therefore alter our view from SLIGHTLY BULLISH to NEUTRAL.
AUD/YEN:The AUD rose in this pair. COT data for the AUD showed a slight improvement and a slight deterioration 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.
Another interesting week in relatively thin summer trading.
Last week we wrote that risk higher, safe haven assets as measured by the 30 YEAR BOND higher and precious metals higher. We started that this is unusual and not sustainable and posed the question which would crack first.
From our COT readings it would continue to suggest that the precious metals are most vulnerable at this stage.
I also stated that post the UK election both GBP and EURO should move lower and start the
corrective move lower in the precious metals.
Nothing much has changed.
 
Therefore our recommendations for next week are:
Retain shorts in precious metals.
Begin to take profits on risk long positions.
Begin to buy VIX on any dips towards 10.
Remain short both the EURO and GBP.
 
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Stay nimble. Good luck trading.
 

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