Swiss Franc Selling Pressure Builds

Trading Themes: The US dollar continued its recovery over the week supported by Hawkish Fed comments and Hawkish FOMC meeting minutes which highlighted a strong chance of a June rate hike provided economic data picks up with labour market conditions and inflation continuing to firm up. US April Inflation data came out in-line with expectations growing 2.1% YoY on core and 1.1% on headline. Focus this week will be on the AGDP print on Friday.

EUR: Disappointing EuroZone inflation keeps ECB under pressure GBP: Sterling bolstered by growing support for the “VoteStay” Brexit campaign. JPY: Japanese back in demand following increase in trade surplus. CHF: A lack of EUR downside keeps the pressure off the SNB for now. AUD: AUD remains under pressure following RBA rate cut, though supported by decline in Unemployment rate. CAD: April Inflation data held the line, focus now on BOC this week.

Let’s take a look at what the latest COT report data is showing us from a trend and net change week over a week perspective…

  • EUR bearish, flat on the week
  • GBP bearish, increased on the week
  • JPY bullish, increased on the week
  • CHF bullish, increased on the week
  • AUD bullish, decreased on the week
  • CAD bullish, flat on the week

EUR/USD Outlook – Bearish

EUR Eurozone’s CPI slipped into deflation again, falling 0.2% YoY in April from the flat growth it registered a month ago. The lack of upside inflationary pressure amid extended weakness in energy prices and lackluster demand suggests ECB would more likely than not expand its stimulus again to spur demand. ECB’s Coeure noted that although the ECB had no plans at present to cut the deposit rate again it remained an option “in principle”

COT Indicators

  • Index active buy signal consolidates
  • Strength active sell signal strengthens
  • Momentum buy ticks down

LFOrder Flow Trader Bearish

EUR/USD Daily Chart

EUR Futures Postioning

GBP/USD Outlook – Bearish

Sterling strengthened over the week deriving strong support from reports that the latest Brexit polls show the “Remain” campaign have pushed ahead with a growing majority alleviating fears that the UK will vote to leave the EU on June 23rd. Sterling was further support by the latest labour market data which shows a record number of people were employed over the first quarter with a 44,000 increase over the three months to March, taking the total to 31.58 mio, the highest level since records started in 1971. Wage growth was also strong over the same period growing 2% against an expected 1.7%.

COT Indicators

  • Index sell signal strengthens
  • Strength sell signal strengthens
  • Momentum buy signal given

LFOrder Flow Trader Bullish

GBP/USD Daily Chart

GBP Futures Positining

USD/JPY Outlook – Bullish

The Japanese yen softened over the week, weighed upon by diminished safe-haven demand amidst a recovery in risk appetite fuelled by moves higher in oil prices. On the data front, Following a better than expected Q1 GDP print, Japan’s machine tool orders also staged a surprise 5.5% MoM increase in March (Feb: – 9.2% MoM). According to the Cabinet office in Tokyo, the rebound was led by demand from manufacturers

COT Indicators

  • Strength active sell signal, ticks down
  • Index active sell signal ticks up
  • Momentum buy signal

LFOrder Flow Trader Bullish

USD/JPY Daily Chart

JPY Futures Positioning

USD/CHF Outlook – Bullish

With EUR having moved counter-intuitively higher in response to the latest ECB measures, it seems some pressure has likely been alleviated from the SNB who refrained from moving on rates at their recent meeting. Worth noting however that recently SNB’s Jordan has warned of a “nuclear” option in the event of continued CHF appreciation stating that the SNB can cut the exemption from negative deposit rates that it extended to most domestic banks’ reserves. The latest CPI data for Switzerland showed that inflation grew 0.3% MoM as expected, adding support for the Swiss Franc.

COT Indicators

  • Strength buy signal given
  • Index active sell signal ticks up
  • Momentum active buy signal ticks up

LFOrder Flow Trader Bullish

USD/CHF Daily Chart

CHF Futures Positioning

AUD/USD – Outlook Bullish

The Australian dollar was lower over the week weighed upon by the release of the RBA’s may meeting minutes which cast a dovish shadow over the currency. The minutes showed that the bank had been briefed about” ongoing inflation trends” which lead them to conclude the likelihood that inflation would be lower for longer and could be reflected in lower wage-growth. ”Moreover, the lower-than-expected CPI outcome could not be explained entirely by temporary factors”. On the data front Australian Unemployment rate remained unchanged in April despite expectations of an increase.

COT Indicators

  • Strength active buy signal ticks down
  • Index active buy signal ticks down
  • Momentum sell signal ticks down

LFOrder Flow Trader Bearish

AUDUSD Daily Chart

AUD Futures Positioning

USD/CAD Outlook – Bullish

Despite firmer oil prices once again this week, the Canadian Dollar actually decoupled from the commodity to trade lower, weighed upon by severe disruption caused by the wildfire outbreaks which damaged Oil production in the affected regions. Economists expect a sharp slowdown in Canada’s economy after a strong start to 2016, while a lengthening of the timeline for oil production to return to normal levels could add downside risk to the outlook. Canadian CPI on Friday printed above expectation on the core reading.

COT Indicators

  • Strength sell signal ticks lower
  • Index active sell signal remains at lows
  • Momentum signal turns flat, await new signal

LFOrder Flow Trader Bullish

USD/CAD Daily Chart

CAD Futures Positioning

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