CFTC Commitments of traders: JPY shorts increase to largest level since early December

Weekly FX futures positioning data from the CFTC

  • EUR short 47K vs 48K short last week. Shorts trimmed by 1K
  • GBP long 25K vs 31K long last week. Longs increased by 6K
  • JPY short 45K vs 31K short last week. Shorts increased by 14k
  • CHF 1.5K vs flat last week. Longs increased by 1.5K
  • AUD short 19k vs 20K short last week. Shorts trimmed by 1K
  • NZD long 1.8K vs square last week. Longs increased by 1.8K
  • CAD long 38k vs 33K long last week. Longs increased by 5K

Weekly FX futures positioning data from the CFTC

Big week coming up for the pound

The near-term sentiment in the pound continues to be driven by odds of a BOE rate cut ahead of the 30 January policy meeting

  • 21 January – UK November average weekly earnings, unemployment rate
  • 21 January – UK December jobless claims change, claimant count rate
  • 24 January – UK January flash manufacturing, services, composite PMI
It is all about data, data, data for the pound this week. With the hot topic being a possible rate cut by the BOE, all eyes will turn towards the labour market report tomorrow and post-election PMI data later on Friday (⬆️).
Currently, odds of a 25 bps rate cut by the BOE on 30 January sit at ~70% – a key threshold that has historically seen the central bank take action when it comes to rate decisions.

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A look at the best/worst major currencies this week is worrisome

Swiss franc strength isn’t what you expect to see in a run-away week for stocks

Swiss franc strength isn't what you expect to see in a run-away week for stocks
It’s rare to see the Swiss franc and Japanese yen at opposite ends of the FX leaderboard. They generally move in the same direction because they’re both low yielders and safe-haven currencies.
So what happened? One argument is that this was a Swiss idiosyncratic move:
  • The US added Switzerland to the FX watchlist for manipulation. That diminishes the chances of large-scale intervention
  • Technical breaks in EUR/CHF and USD/CHF added to momentum
  • Russian political drama added to the bid for CHF
I wouldn’t disagree with any of those factors but it’s still a stark difference. The other argument is that this run-up in risk is driven by leverage from cheap money, retail chasing momentum and year-end effects.
Ultimately, the market will have to answer but I just can’t get behind this run in risk until we see a bit more alignment in equities with FX and bonds.

Weekly market roundup: Bitcoin surges up and trade tension declines

What drove markets this week

BitcoinThe dollar has generally made some gains this week against various currencies. These movements came after fairly good data from the USA as well as the signing of a first stage trade deal between the USA and China.

Some of the biggest news in forex markets this week came from central banks. Both the South African Reserve Bank (SARB) and the Central Bank of the Republic of Turkey (CBRT) cut rates against expectations. The CBRT was first yesterday morning, cutting its one-week

repo rate from 12% to 11.25% compared with the consensus expectation of 11.5%.

Then the SARB also cut its repurchase rate to 6.25% yesterday afternoon, another decision that defied expectations. In a rare display of agreement among central bankers, the SARB’s

monetary policy committee voted unanimously to cut by 0.25%.

Shares reacted eagerly to news of the preliminary Sino-American trade deal, with US500 continuing its rapid gains since Monday’s open. Many European indices and shares also reached new all-time highs.

Bitcoin-dollar, daily

Bitcoin chartBTC-USD has surged up even more in the second half of the week. Current levels around $8,900 are the highest for about two months. The red trendline here is based on the weekly chart, starting from last summer’s highs around $13,000.

We can clearly see that price has broken out upward from this trendline, facing little resistance from the 100-period simple moving average.

The first major hurdle for the bulls here is likely to be the 200-day moving average. This is expected to be a strong area that could well resist testing at least temporarily. The 61.8% Fibonacci retracement area which price is currently testing could also function as a resistance.

Technical indicators here give a very strong overbought signal. Price closed the last three days completely outside the upper deviation of Bollinger Bands (50, 0, 2).

The slow stochastic (15, 5, 5) is also clearly within the upper trigger zone. These factors would suggest that a retracement to some degree is likely within the next few periods.

American light oil, four-hour

American light oil chart

USOIL’scorrection appears to have paused for now. The large losses from last week’s nine-month highs were driven mainly by the decline of military tension between the USA and Iran in Iraq. Now, though, the signing of the first stage deal between China and the USA has given crude a significant fundamental boost.

As China is the world’s biggest consumer of crude oil, the outlook for the Chinese economy often influences the price of the commodity.

The regular data for crude were somewhat incompatible this week. The API’s stock change announced a gain of 1.1 barrels per million, but the EIA’s stock change read negative 2.55 million on Wednesday night.

USOIL didn’t react very strongly to either release, so we might expect that trade and Chinese data could continue as key drivers next week as well.

From a technical standpoint, the conditions seem to be there for oil to continue its overall uptrend from Q4 2019. Momentum to the downside has dried up this week while buying volume remains fairly high.

The most important resistances in the short term are likely to be the three moving averages, with the 200-period SMA probably the most important of these.

Dollar-yen, four-hour

USDJPY chart

USD-JPY has been somewhat less volatile this week while continuing to make some gains overall in the aftermath of decent data from the USA. Annual inflation and core inflation on Tuesday both printed 2.3% in line with expectations, the former beating the previous figure by 0.2%.

American retail sales came in at 0.3% yesterday afternoon in line with the consensus, but November’s release was revised upward slightly.

The charts look positive for dollar-yen but buying saturation could limit any ongoing gains. Price remains above all three of the usual moving averages, with the faster 50 SMA completing a golden cross of the slower two on Wednesday afternoon GMT.

On the other hand, volume remains very low, and the slow stochastic is still slightly inside the overbought zone.

It seems that most traders are waiting for key releases next week to provide some momentum, up or down. The Bank of Japan’s meeting on Tuesday morning and Japanese inflation late on Thursday evening are expected to bring some more direction to USD-JPY.

EURUSD trades to a new week low

Below the Tuesday low at 1.11038

The EURUSD is trading to a new week low at 1.10973 and trade just off that level as I type. the Tuesday low at 1.11038 was the prior low.  The EURUSD got a shove lower after running away from the 100 hour MA (at 1.11362), the 200 day MA (at 1.1133), and the 200 hour MA (green line at 1.11299 currently). An upward sloping trend line was also busted and helped to shift the buyers to sellers.
Below the Tuesday low at 1.11038
On more downside, the pair is looking toward a lower channel trend line on the hourly at 1.1090.  A move below that and the low from last week at 1.10843 will be eyed.
Of note is that there is $1.6B of option settles at 1.1100 at the 10 AM ET cut off. Option sellers reap all the decay when the option settles at the strike price (so at 1.1100). That is the best case scenario. Option buyers want to see the price move away from that strike price.    That dynamic may lead to an impact on the currency pair (on hedging activity).  Nothing is guaranteed of course but there may be a magnate that keeps the price near this level into the 10 PM option cut off if the sellers are more in control.  However, if the price starts to move away, those option sellers may be forced to hedge their exposure into the settle.

The Chinese yuan may be set for a relatively uninteresting year ahead

The yuan has been keeping more firm amid the US-China trade deal but we are likely to see the currency find more stability this year

USD/CNY D1 17-01

USD/CNY is resting at six-month lows now as China continues to make good on its currency pledge with the US in the Phase One trade deal. But this is just a bit of a corrective movement after the fall in the yuan at the start of August last year.
In looking at the yuan this year, there’s going to be two sides of the equation.
On the one hand, China would prefer a weaker currency to deal with US tariffs. On the other hand, China would prefer a stronger currency if it is to step up purchases from the US – in trying to achieve the $200 billion set out by the trade deal.
Put those two together and the fact that China gave the US the same pledge as it has been promising the G20, I reckon we can expect the yuan to find more stability this year – once Chinese officials settle on where it feels the right balance should be.
Once the currency settles into that “sweet spot”, we can expect some mild movement around 2% up or down from time to time but I wouldn’t expect a significant move like what we saw in trading last year – especially the August incident.
The caveat is that all of this hinges on the US-China Phase One agreement being able to last. So, let’s see how that shapes up during the course of the year.

Ruble slides after Russian government resigns

Ruble falls to one week low

Prime Minister Medvedev says the Russian government has submited a resignation and that Putin will decide the makeup of a new government. Separately, Putin appointed Medvedev deputy head of the security council.
The ruble is down about 0.5% on the news.
Earlier today Putin called for a nationwide vote that would distribute power to parliament and the PM and away from the Presidency. That sounds like Putin is giving away power but his term as President expires in 2024 and it would give parliament the power to choose the prime minister.
In the same speech, Putin announced measures to incentivize a higher birth rate. It’s fallen to 1.75 and he announced cash incentives, increased child benefits, hot lunches for kids and grants to mothers of large families.