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CFTC traders positioning data

The latest Commitments of Traders (COT) report, released on Friday, August 10, by the Commodity Futures Trading Commission (CFTC), showed that on a week ended August 7.

Speculators reduced EUR net short positions by 4.5% ($1 billion) from the week before to $20.4 billion. After positioning reached extreme short levels in June, EUR has seen a decline in net shorts for the past 4 consecutive weeks. GBP shorts are building up. AUD’s positioning saw the largest change ($1.7 billion) as net longs keep increasing. Positions are at net long territory already for 6 weeks in a row. JPY net longs decline for the first week since early July as the Japanese currency weakened versus the greenback. Investors also bet that CHF would fall, holding a net $2.3 billion short position, 4% smaller than the week before. Net long USD position against seven major currencies decreased by 18%.

Take a look at the following table.

It’s necessary to note that the figures cited above are always a week old at the time of their release. Never the less, CFTC data gives a good oversight into how the market is positioned and if/how these positions are being unwound. Although the CME speculators represent a small fraction of trading in the currency markets, their trades are widely seen as typical of hedge fund investors' currency movements.

In the COT report all the market players are divided into three categories: hedgers (commercials), big speculators (non-commercials) and small traders (non-reportable positions). We analyze only non-commercial positions (mainly, these are banks and investment funds).

We recommend you paying attention to:

Extreme Positions: If everyone is already long or short it is a strong indication price may reverse because there is no one left for buyers to buy from and no one left for sellers to sell to.

Changes in Market Positions: When large speculators change their position and go from net long to net short or vice versa, there typically is a good reason they do this.

Changes in Open Interest: Rising or falling open interest may reflect directional commitment or lack thereof and therefore indicate strength or potential reversal of a particular price trend.

Find more at the CFTC website.

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Euro area: events calendar

Find out what awaits the euro area in August/September.

Aug. 20: Greece to redeem 3.1 billion euro bond held by ECB.

Aug. 21: Spanish T-bill auction. Greek T-bill auction.

Aug. 22: Eurogroup president to meet the Greek prime minister.

Aug. 24: Greek prime minister to meet the German Chancellor.

Aug. 25: Greek prime minister to meet the French president.

Aug. 27: German August Ifo business-climate index.

Aug. 28: Final Spanish second-quarter GDP. Spanish T-bill auction. Euro-area July M3/private-sector loan data. Italian bond auction.

Aug. 29: Italian T-bill auction.

Aug. 30: Italian bond auction.

Aug. 31: Euro-area flash August inflation data. Italy to redeem 11.5 billion euro of bonds.

Early Sept.: Troika team to return to Athens. European commission expected to make a proposal for a banking union in the euro area by September 11.

Sept. 1: No new disbursement of aid to Greece expected before this date.

Sept. 3: Euro-zone August manufacturing PMI data.

Sept. 5: Euro-zone August services PMI data. German bond auction.

Sept. 6: ECB rate decision and press conference. Revised EU second-quarter GDP data. Spanish and French bond auctions. German July manufacturing orders.

Sept. 7: German July industrial production.

Sept. 10: French industrial production.

Sept. 11: Greek T-bill auction.

Sept. 12: German constitutional ruling on European Stability Mechanism injunction. General elections in the Netherlands. Italian T-bill auction. German bond auction.

Sept. 13: Italian bond auction.

Sept. 13-14: G20 finance ministers and central bankers to meet in Mexico City.

Sept. 14-15: Informal Eurogroup/Ecofin meeting in Cyprus.

Sept. 15 (approximate): Auditors due to release report with detailed capital needs of Spanish banks. Italy to redeem 10.4 billion euro of bonds.

Sept. 15-Sept. 30: French 2013 budget due.

Sept. 18: Spanish and Greek T-bill auctions.

Sept. 19: Portuguese T-bill auction. German bond auction.

Sept. 20: Spanish and French bond auctions.

Sept. 25: Italian bond auction. Spanish T-bill auction.

Sept. 26: Italian T-bill auction. German bond auction.

Sept. 27: Italian bond auction.

Sept. 30. Irish government hopes by this date to have completed talks with euro zone on ways to refinance bank-rescue debts.

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AUD/USD: slowed growth

On Monday AUD/USD trades below $1.0550 as demand for high-yielding assets declined. On Thursday the pair opened a new four-month high at $1.0613 and now we observe a bearish correction.

According to analysts at Westpac, the key driver for the Australian dollar this week will be external, not domestic data. These external releases will likely bring more pessimism to the markets: data released today showed Japan’s economy grew less than forecasted, while data tomorrow may show the euro zone’s economy contracted in Q2. However, demand for the Aussie was supported as futures traders increased their long positions.

RBC: AUD was the best-performing G10 currency in July, consistent with elevated risk appetite. However, we are cautious about AUD's ability to sustain this outperformance as AUD already belies the relative performance of Asian equity markets. We see scope for a correction in AUD/USD back below parity.

Chart. Daily AUD/USD

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EUR jumped on better-than-expected Greek GDP

EUR/USD jumped up forming a 20-pip gap on the H1 chart. The pair’s currently trading just below 200-hour MA at $1.2320 (50- and 200-period MAs on H4 chart).

The single currency propelled up as Greek GDP data brought positive surprise: the nation’s economy contracted by 6.2% in Q2 vs. 7.0% decline expected. In addition, demand for Italian bill auctioned today was strong, though the yields were higher.

Resistance: $1.2385 (August 9 maximums), $1.2400 (August 8 maximum, 50-day MA) and $1.2444 (August 6 maximum).

Support: $1.2260 (former downtrend resistance, the recent uptrend support line and 100-period MA on H4 chart), $1.2240 (August 10 minimum), $1.2218, $1.2166 (August 3 minimum) and $1.2133 (August 2 minimum).

Commerzbank: As long as EUR/USD keeps trading below $1.2444 (August peak), the outlook for it will remain negative.

Westpac: Weak euro zone Q2 GDP is a potential hurdle for euro, but the hopes for ECB’s action will remain. “Risks of a range break are still skewed higher, towards $1.2450/2500”.

Chart. H1 EUR/USD

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NZD's well supported

Analysts at BNZ expect NZD/USD to reach $0.8200 by the year end. In their view, fundamental factors are stacked in favor of NZD strength. In general, the global backdrop remains highly supportive of the risk-sensitive NZD. However, in a near-term kiwi’s bounce may be limited at $0.8245 on the back of lackluster NZ recovery and a pushing back of RBNZ rate hike expectations.

Monday Q2 retail sales report attracts traders’ attention: economists expect core retail sales to increase by 1.0% following a 2.5% decline in Q1.

Сhart. Daily NZD/USD

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FX majors from top forecasters

Here are the forecasts for EUR/USD, GBP/USD, USD/JPY, USD/CHF and EUR/JPY from top forecasters. Data were submitted on August 10.

Source: FX Week

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August 14-17: economic events

Tuesday, August 14

Euro area:

• French preliminary GDP (5:30 GMT). The euro zone’s second largest economy surprised by growing in Q4 2011 (analysts expected contraction) and remained flat in Q1 2012. PMIs and other indicators point to a 0.1% q/q decline in Q2.

• German preliminary GDP (6:00 GMT). Germany’s strong 0.5% q/q growth in Q1 saved the whole euro area from entering an official recession. However, the situation deteriorated in Q2: GDP growth is expected to drop to only 0.1% q/q.

• Flash GDP (9:00 GMT). Economists expect the euro zone’s economy to contract by 0.2% q/q in Q2 after zero growth in Q1. Note that the estimates are likely to change once Germany and France release their figures.

• German and euro zone ZEW economic sentiment (9:00 GMT). German indicator fell to -19.6 points in July, disappointing once again, and showing the growing pessimism in the German business community. In August specialists expect a very small recovery to -19.2. Meanwhile, the indicator for the entire euro zone is likely to improve from - 22.3 points in July to -19.1 in August.

• Industrial production (9:00 GMT). Industrial output may have contracted by 0.4% m/m in June after an unexpected increase by 0.6% m/m in May.

Great Britain:

• CPI (8:30 GMT). The key inflation index is expected to have increased by 2.3% y/y in July – CPI’s growth rate is slowing down from 2.8% in May and 2.4% in June.

US:

• Retail sales (12:30 GMT). Retail sales probably rose in July for the first time in four months as employment picked up. The important gauge of consumer spending is expected to rise by 0.4% m/m in July following a 0.5% m/m decline in June. Core retail sales are to rise by 0.4% after a 0.4% m/m decline in the previous month. However, according to HSBC economists, consumer spending growth remains subdued as consumers are still trying to rebuild savings.

• PPI (12:30 GMT). According to consensus, the PPI index may have added by 0.3% m/m in July following a 0.1% growth in June.

 

Wednesday, August 15

Britain:

• Unemployment claims from Claimant Count (8:30 GMT). Jobless claims may have increased by 6.3K in July after adding 6.1K in June. The unemployment rate is expected to remain at 8.1%. Such forecasts show that UK labor market is likely to stay weak.

• MPC meeting minutes (8:30 GMT). The odds are that the MPC’s decision to leave monetary policy unchanged in August (the key interest rate at 0.5% and QE at 375 billion pounds) was unanimous. As the central bank slashed forecasts for domestic economy last week, analysts think that there’s additional stimulus on the horizon.

US:

• CPI (12:30 GMT). According to projections, CPI inflation picked up by 0.2% m/m in July from 0% m/m in June, but should stay at the 1.7% y/y level. Core figures are seen unchanged at 0.2%. The small monthly increase won’t be considered as an argument against further easing from the Fed.

Thursday, August 16

Britain:

• Retail sales (8:30 GMT). Analysts don’t expect retail sales to cheer up the market: the reading will likely be low in July (+0.1% m/m), the same as in June.

Euro area:

• CPI (9:00 GMT). Inflation is forecasted to stay at 2.4% y/y in July, same as the 2.4% y/y reading in June.

US:

• Housing starts (12:30 GMT). The index may have remained at 760K last month. The indicator was slightly growth since the second half of 2011, but remains far below the levels seen in 2007-2008.

• Building permits (12:30 GMT). The index is seen slightly up at 770K in July vs. 760K in June. The dynamics of the indicator has been much similar to the one of the housing starts.

• Unemployment claims (12:30 GMT). Jobless claims may have increased from 361K to 365K.

• Philly Fed Manufacturing Index (14:00 GMT). The index is seen below zero for the fourth consecutive month at -4.3 in August from -12.9 in July. This would be an improvement, though negative reading means that US manufacturing sector is still weakening.

New Zealand:

• PPI Input (22:45 GMT). The index growth rate slid from 0.5% in Q1 q/q to 0.3% in Q2, analysts say.

Friday, August 17

Euro area:

• German PPI (6:00 GMT). Producer prices were worse than expected for 3 months in a row. The prices fell in the past 2 months. Specialists forecast a rise of 0.4% m/m in July.

• Current account (8:00 GMT). We saw 3 consecutive months of surpluses with a record 10.9 billion euro surplus in May. June will probably see a lower, but still positive figure of 7.8 billion.

Canada:

• CPI (12:30 GMT). Both CPI and core CPI are predicted to rise by 0.2% m/m in July, confirming that the previous 0.4% m/m drop was an exception.

US:

• Preliminary UoM consumer sentiment (13:55 GMT). US consumer confidence continued declining: it dropped to 72.3 points in July from 73.5 in the previous month. A tiny increase to 72.5 is expected in August.

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GBP/USD: technical comments

On Monday GBP/USD trades above $1.5700 mark, gaining momentum for a second consecutive day. The pair still remains in a flat range, but we can see a slightly rising channel, created in August. What’s more, since July 11 every new minimum is lower than the previous.

We see the next resistance for the pair at $1.5720 (200-day MA) and $1.5775 (the pair has been trading below these levels since May). If the pair manages to overcome this area, further growth towards $1.5904 (61.8% Fib. retracement of a May decline) would become possible. On a downside strong support lies in the $1.5480 area.

Chart. Daily GBP/USD

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Macroeconomic indicators

The table below provides recent data on the main macroeconomic indicators and is an extremely valuable resource for any trader.

Table. Main macroeconomic indicators

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August 14: forex news

The MSCI Asia Pacific Index of shares climbed 0.1%. NZD/USD moves up on the back of the positive retail sales data (+1.3% q/q vs. +0.7% expected), but a short-term trend remains negative. The markets are waiting for the data due today that may add to signs Europe’s debt crisis is worsening. AUD/USD slid to the $1.0500 area. USD/CAD edges up for a second consecutive day.

USD/JPY is strengthening for the second day in a row as demand for safe havens declined. The Bank of Japan’s July meeting minutes released yesterday signaled that the central bank’s considering ways of increasing stimulus.

EUR/USD’s trading below yesterday’s maximum at $1.2373 ahead of today’s publications: German GDP at 06:00 GMT, French Non-farm payrolls and wages at 06:45 GMT, German ZEW economic sentiment at 09:00 GMT, euro zone’s GDP, industrial production and ZEW survey at 09:00 GMT. In addition, Greece plans to sell 3.125 billion euro in 91-day bills at 09:00 GMT. French GDP came unchanged in Q2, while analysts were expecting contraction.

GBP/USD also edged higher, but stays below Monday’s high and 200-day MA around $1.5720. UK is to release July CPI figures today at 8:30 GMT. According to the forecasts, inflation declined last month by 0.1 percentage point to 2.3%. Such data will allow the markets expect more easing from the Bank of England.

Also watch for US data later today (12:30 GMT): retail sales figures for July will offer an important update on the state of consumer demand at the start of Q3. American PPI may increase a bit, but nothing that would prevent the Fed from more easing.

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Key options expiring today

Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).

Here are the key options expiring today:

EUR/USD: $1.2225, $1.2230, $1.2250, $1.2260, $1.2325, $1.2370, $1.2400;

GBP/USD: $1.5600, $1.5700;

USD/JPY: 78.25, 78.45;

AUD/USD: $1.0550, $1.0600;

NZD/USD: $0.8200;

EUR/GBP: 0.7800.

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AUD/USD: technical comments

As can be seen from the daily chart, the bulls have so far been very persistent: the pair spent quite a long time close to the upper boundary in comparison to the previous single peaks. For now, the pair hasn’t conquered levels above $1.0600.

At the same time, Aussie didn’t fall dramatically right after touching the boundary, but remains relatively flat. Australian currency may continue moving sideways from this point on the calm August market.

Some analysts expect a deeper correction to $1.0400 levels after the pair lost its ground on Monday, as investors await data that could add to global growth concerns.

Also note that AUD/USD is not far from strong technical resistance (weekly downtrend line around $1.0670). The key support area is $1.0495/45. If these levels fail to support the pair, it will become vulnerable for a decline to the 200-day MA.

Chart. H4 AUD/USD

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EUR/USD: technical update

EUR/USD renewed week’s maximum reaching $1.2385, but then was held back by the discouraging economic data.

50-period MA crossed the 200-period one on the H4 chart – a bullish signal. Analysts at Commerzbank, however, insist that the outlook for euro is negative below $1.2444.

Resistance: $1.2390, $1.2400 (50-day MA, psychological level), $1.2440 (August maximum), $1.2500, $1.2620, $1.2660 (longer-term downtrend, 50% retracement from May maximum to July minimum).

Support: $1.2320, $1.2280/60, $1.2166 (August 3 minimum), $1.2133 (August 2 minimum), $1.2040 (July minimum).

Both support and resistance look strong at this point. Tomorrow French and Italian markets are closed due to the bank holiday. The data flow from Europe is over for now, so it will be up to US to move the market.

Chart. H4 EUR/USD

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Analysts: what supports the Aussie?

Despite the risk negative environment, the Australian currency is enjoying a big increase in net long positions. What’s the reason?

According to some economists, the Aussie is supported by policy easing expectations: the ECB is likely to launch a massive bond-buying program, while the Fed seems to be close to a third round of QE.

"As global central bank policy has diminished tail risk and crushed volatility traders are adding to risk positions," say strategists at Scotiabank.

However, strategists at RBC are less optimistic. In their view, the Aussie is to weaken after the RBA expressed concerns about the impact of a strong national currency on the economy. Specialists add that the net long positions growth was too quick (investors were short on the Aussie in early June).

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USD/CAD: technical update

Last week USD/CAD breached downtrend support line which started to act as resistance. In addition, the pair went below the uptrend support line at 0.9955 connecting 2011 low and April 2012 minimum. This too will strengthen resistance.

The greenback is now consolidating above 0.9900 (psychological level which has acted several times as support during the past 2 years). If this support fails, USD/CAD will slide to 0.9800. At the same time, daily RSI is close to the oversold area.

Chart. Daily USD/CAD

On the H4 chart we see bearish convergence on MACD – bullish signal. However, 50-, 100- and 200-day MA are sloping down providing resistance for the pair.

Chart. H4 USD/CAD

Resistance: 0.9955 (previous support line), 1.0000 (psychological level), 1.0050 (February, April maximums, December 2011 minimum), 1.0100 (200-day MA).

Support: 0.9900, 0.9860, 0.9840 (February, March minimums), 0.9800.

We think that USD/CAD will be moving lower, but think that support at 0.9800 is very strong, so one should be looking for a chance to enter longs down there.

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NZD/USD: technical comments

On Tuesday investors are indecisive on the NZD/USD, but all in all the pair demonstrates a weekly decline. The kiwi has approached a strong support (previous resistance) at $0.8065 – the pair again and again repelled from this level in 2011 and 2012.

As can be seen from the daily chart, the pair remains in a channel, created by two lines: the upper connects 2011 and 2012 highs, the lower - the bodies of these candles). Today NZD/USD trades slightly above the lower. If the pair breaks it on a downside, it will target the lower boundary of the upward channel, existing since June. Support can be seen around $0.7960 (MA’s crossing) and $0.7810 (July 25 low).

If not, the pair will fluctuate towards the upper channel-forming line. Further strong resistance lies at $0.8200, $0.8317 (April 13 maximum) and $0.8470 (February 29 maximum).

Note that on a daily chart we can see a bullish divergence.

Chart. Daily NZD/USD

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US data comes more solid than expected

Things in the US aren’t that bad after all, are they?

After mixed (more negative than positive) news from Europe, US data came better than expected.

American retail sales rose by 0.8% m/m (cons.: +0.3%; prev.: -0.7%). Core indicator increased by 0.8% (cons.: +0.4%; prev.: -0.8%). PPI added 0.3% m/m last month (cons.: +0.3%; prev.: +0.1%). Core indicator increased by 0.4% (cons.: +0.2%; prev.: +0.2%).

Wells Fargo: “Overall, foreign exchange markets continue to show a lack of conviction, although with global equity markets and European bond markets showing gains, we have a slight bias towards yen and US dollar weakness, and strength in most other foreign currencies.”

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August 15: forex news

High-yielding currencies weaken amid concerns US data will reduce the expectations for QE3. Demand for Aussie was also tempered after the Westpac consumer sentiment index fell amid prospects the RBA will keep interest rates unchanged. AUD/USD trades below $1.0500, while NZD/USD – below $0.8100. USD/CAD consolidates around 0.9920.

EUR/USD is trading below the week’s maximum ($1.2385), in the narrow range of $.1.2320/30, between 50- and 100-hour MAs. Markets in many European countries are closed due to the Assumption Day celebration. No data releases are scheduled in Europe; there even are no debt auctions.

The main attention this afternoon will be focused on the UK. At 8:30 GMT Britain will publish labor market data (jobless claims, unemployment rate) and the MPC meeting minutes. GBP/USD spiked to $1.5728 yesterday, but was contained by the 200-day MA.

USD/JPY rose yesterday above 20-day MA and reached 1-month high at 78.93 helped by positive American data.

Today the US will continue releasing important indicators: core CPI and Empire State manufacturing index at 12:30 GMT and industrial production at 13:15 GMT. The data is expected to support the greenback.

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[ryuroden]

Key options expiring today

Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).

Here are the key options expiring today:

EUR/USD: $1.2200, $1.2210, $1.2225, $1.2300, $1.2350;

GBP/USD: $1.5675;

USD/JPY: 78.00, 78.10, 78.25;

EUR/JPY: 97.00;

EUR/GBP: 0.8000.

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[ryuroden]

BofA: bearish on NZD/USD

According to technical specialists at Bank of America, NZD/USD may fall after descending from the top of its year-long downward range.

The kiwi broke below the important support (previous resistance) at $0.8067, confirming the slide from the top. The pair again and again repelled from this level in 2011 and 2012. Strategists expect the pair to decline to $0.7841 and then to $0.7489.

Chart. Daily NZD/USD

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[ryuroden]

USD/JPY is up from the recent range

The technical picture improved. The pair USD/JPY rose yesterday above 20-day MA and reached 1-month high at 78.93 helped by positive American data. Today the bulls pushed the pair through the resistance line at 78.75 connecting March, June and July maximums.

Commerzbank: The greenback will rise to 79.01 (55-day MA) and 79.19 (200-day MA). The pair should close above 79.19 to get chance to rise to 80.63 (June maximum) in the coming weeks. If USD/JPY fails to overcome this obstacle, it will be vulnerable for a slide to 78.03/77.90. The resistance at 200-day MA is traditionally strong.

Chart. Daily USD/JPY

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Olli Rehn: Spain may ask for sovereign bailout

European Economic and Monetary Affairs Commissioner Olli Rehn signaled yesterday that Spain’s government is considering a request for a sovereign bailout after earlier accepting 100 billion euro of aid to help the nation’s banks, reports Bloomberg.

“The Spanish government has an open mind on this issue, but no decision has been made. We stand ready to act if there is a request,” said Rehn.

Spanish 10-year bond yields reached record maximum of 7.62% on July 24. Yesterday yields eased to 6.72%. Another euro zone’s nation, Belgium, on the contrary, sold 3-month bills at negative yield. In other words, investors paid to lend Belgium money. Rehn underlined that this is “not a healthy phenomenon”, but a “sign that the euro-zone economy is not doing well”.

Olli Rehn, EU Commissioner for Economic & Financial Affairs

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[ryuroden]

JPY: contrary prospects

The yen issue doesn’t leave us. The views, as always, differ.

Nomura says that global risk-on environment suggests a higher possibility of JPY weakness in the near future. The specialists have already proposed to buy GBP/JPY. “US yields are always one of the most important determinants for USD/JPY and yield movements ahead of the next FOMC meeting in September may increase volatility.” Tuesday’s strong retail trade figures “could also be seen as an encouraging sign of a risk rally in the near future.”

RBC reminds yen tends to strengthen in August. The specialists say that although this hasn’t happened yet, things may change. “With a heavy concentration of US Treasuries coupon payments this week repatriation flow is likely to pick up against a background of depressed liquidity, particularly so given the Obon holidays (August 11-19) in the early part of the week.” According to the analysts, USD/JPY declined by an average of 137 pips every August through 2005.

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[ryuroden]

EUR/GBP: reasons for a drop

Despite the recent bullish correction of the EUR/GBP, we see enough reasons to remain bearish on the pair in a longer term.

As can be seen from the H4 chart, last week EUR/GBP broke below the short-term bullish support line, hinting that the upward retracement is over.

What’s more, we can see a head-and-shoulder pattern with a neckline at 0.7825. This pattern marks a significant top in the market and would be confirmed by a break below the neckline.

Taking into consideration the reasons cited above, we recommend selling EUR/GBP at 0.7820 (just below the neckline), targeting 0.7760 (lowest level since August 2008) and with a stop at 0.7885 (above the right shoulder of the pattern).

From a fundamental point of view, euro zone’s debt woes are reviving with renewed vigor as the summer comes to an end. On August 20 Greece faces redemption of a 3.2 billion-euro bond held by the ECB. Note that the British pound may find support after we’ll see the first economic results of the London Olympics.

Chart. H4 EUR/USD

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RBC: UK economic paradox

Analysts at RBC note a strange inconsistency between the UK GDP (-0.7% in Q2) and the positive employment figures. In their view, it would be similar if the US NFP rose by 300K a month for three straight months along with the GDP contraction. However, the improvement of employment figures may be due to a short-term effect from the London Olympics.

Despite the fact that all the MPC members voted to leave the current monetary policy unchanged, many market participants still believe the BoE will opt for more monetary easing in the coming months to aid an economy struggling in a deep recession.

On Wednesday GBP/USD trades on the upside after the MPC minutes and the positive labor market data, but still remains below the $1.5700 mark. The pair remains capped in a sideways channel and below the 200-day MA resistance.

Chart. Daily GBP/USD

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