Fundamentals for the Week Ahead : 12 July 2015

Posted On 12 Jul 2015
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Greece seems to have come and gone without too much ado for the Euro which surprisingly closed the week higher.
It would seem that the Greek government has tabled a package that the Troika can work with. We should have their positive response this weekend. A bullish one will underpin recent Euro strength.
Currency volatility was driven in the main by events in China where risk roller coasted through a week of turbulence with wild intra-day swings. With virtually half the Chinese counters closed and short selling banned this story has yet to run its course.
In The FED’s Chairpersons speech on Friday it was made clear that a FED Fund hike sometime later this year was still on the cards. As we have stated before never in the history of interest rates has a 0.25% interest rate hike been more talked about, anticipated and discussed. We remain of the view that it is thoroughly priced in.
COT data is back this week.
USD: Tuesday starts the week off for the $ when we have Core Retail sales expected at 0.7% and Retail Sales at 0.4%. The former excludes automobile sales.
On Wednesday we have PPI thought to be 0.2% and FED Chairperson Yellen testifies on the Semiannual Monetary Policy Report before the House Financial Services Committee. This is important.
On Thursday we have the usual Unemployment Claims estimated at 282,000 and the Philly Fed Manufacturing Index at 12.1. Also Yellen continues to testify.
Friday is a busy day with Building Permits anticipated at 1.11m, CPI at 0.3%, Core CPI at 0.2% and Consumer Sentiment estimated at 96.7.
Core CPI excludes food and energy.
COT data shows that large commercials increased their net short position in the US$ Index from 63,070 to 72,574. BEARISH.
EURO: Final decision time for Greece. On the face of it all seems to be well.
The EU Economic Summit starts on Sunday. This is followed by a series of Eurogroup Meetings on Monday.
On Tuesday we are back to normal economic data when we have German Economic Sentiment expected at 30.6.
On Thursday we have the Minimum Bid Rate which is the interest rate on the main refinancing operations that provide the bulk of liquidity to the banking system, expected to remain unchanged at 0.05%. We also have the ECB Press Conference.
COT data for the Euro shows that large commercials slightly increased their net long position from 134,756 to 141,478. BULLISH.
GBP:  A fairly light week for GBP starting on Tuesday with CPI expected to remain unchanged at 0.1%.
On Wednesday we have the Average Earnings Index expected to show growth to 3.3%. We also have the important Claimant Count Change which is expected to decrease by 9,300.
COT data for GDP shows that large commercials increased their net long position by a considerable amount from 7,118 to 21,171. BULLISH.
YEN: Only two key data points.
On Tuesday we have the BOJ Monetary Policy Statement.
On Wednesday we have the BOJ Press Conference.
More importantly for the YEN is how far it can rally as risk around the globe continues to suffer as the carry trade is unwound.
COT data shows that large commercials decreased their net long position from 117,282 to 100,465. NEUTRAL TO SLIGHTLY BULLISH.
AUD: Only one item of note for the AUD which is the NAB Business Confidence number Monday.
Volatility will be provided by events in China.
COT data shows that large commercials increased their net long position form 38.743 to 47,565 which is not insignificant but a long way away from their largest net long in March which stood at 107,717. SLIGHTLY BULLISH.
CNY: On Monday we have the Trade Balance number thought to be 57.0B.
On Tuesday we have GDP and Industrial Production. The former estimated at 6.9% and the latter at 6.0%.
Events in China will be driven by how risk performs going forward.
There is no COT data for the CNY.
OTHER COT DATA OF NOTE: Going forward we are adding COT data for products that stand out.
GOLD: Large commercials reduced their net short position from -74,769 to -52,589. This now stands very, very close to the lowest short position over the last 52 weeks and is therefore SIGNIFICANTLY BULLISH.
SILVER: Large commercials reduced their net short position from -21,160 to -14,319. Like gold this is very, very close to their lowest net short position over the last 52 weeks and is also therefore SIGNIFICANTLY BULLISH.

OUR VIEW:   In last week’s OUR VIEW I wrote that “Currently the polls show both the NO’s and the YES’s neck and neck so the chances of a decisive vote either way is unlikely meaning that traders will be stuck at their screens from Sunday night onwards as the referendum votes are tallied. A NO vote should result in initial EURO weakness but that may already be largely priced in whilst a YES vote should, at least on paper result in a rally. Personally I am doubtful of either event. What I am not doubtful about is that volatility will be high. margins have been raised, stops both for the longs and the shorts will be taken out.

The other asset class to follow closely are the Chinese stock markets all of which are now in official bear markets. perhaps a brief, short, sharp respite rally is on the cards?”
This is exactly what happened.
This week should mark the continued slow decline of the $. Its inability to rally and make new highs in the face of potential Euro calamity bodes it ill.
The market’s inability to see that the $ Index continues to form a series of lower highs means that it will continue to form a series of lower highs.

Stay nimble. Good luck trading.



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