Global Indices held above key swing lows, which have been suggesting a bounce higher these past two weeks with bullish hammers and doji's on the weekly charts. Multiple FX markets also sits around key juncture's (such as USD crosses and NZDJPY).
USD Futures: At 31k contracts net long, this is the 2nd lowest the ratio has been since hitting the multi-year highs in March 2015 (and the ratio was 81k). The lowest reading was back in October 2015 (28k net long) and this marked the beginning of the final leg higher towards 100.60. The fact it failed to breach 100.70 and then rolled over makes me suspect we could remain in a sideways range for some time, but also risk trading lower to 93 before finding support. Of course I could be wrong but not seeing a convincing technical argument to assume a bullish break to new highs.
JPY Futures: JPY futures remain elevated and at 4-month highs, despite the BoJ negative interest rate policy and threat of further cuts. The policy change certainly didn’t shake out the Yen bulls and if anything, reignited their justification of being long Yen. For now the bias remains for USDJPY to make its way down to 106.
WEEKLY WRAP: 22nd Feb 2015
A snapshot of money flow and potential catalysts to help with the trading week ahead.
AUD Futures: Large specs are net long for the first time since May 2015. However this itself did not end well for the Aussie last time it crossed above this threshold, as it dropped back below 80c soon after en route to the 0.6820 lows. Open interest (a proxy for volume) has dropped 32% in the past 4 weeks alone and price action suggests we could be within a complex correction form the multi-year lows, so the rally is being treated with suspicion. That said large speculators have shed over 12k short contracts this since the lows whilst adding over 16k longs over the same period.
CAD Futures: Falling open interest whilst prices rebound from multi-year lows is the common theme on both CAD and UAD futures. Therefor it suggests the gains are corrective and for the trend to break to new lows over the coming weeks or months. However, whilst the long/short ratio shows large speculators remain net short, I am also taking notice of the reduction of longs which adds extra credence for the move to be corrective. With open interest down we have traders on the sidelines looking for opportunities to enter in line with the bearish trend so is a theme worth monitoring in the week/s ahead.
GBP Futures: Open interest has increased by over 100k contracts since November 2015, when the downside begun to accelerate. The fact we are seeing such an influx of activity whilst prices decline provides more confidence the trend may persist. Being net short by -36k contracts it is well above the levels seen in July '13, where the ratio hit -77k net short, so I see no immediate threat to an aggressive bounce higher on GBPUSD.