COT Report Analysis - a thread on market sentiment

Trading Discussion News and Economy
3934

Hi Peter,

wow! What a slep in the face for USD bulls! I do not even remember such an NFP. I see one neutral data (5.1% unemployment rate) and everything else is red on my economic calendar - ok, shouldn´t over dramatize, the Average Hourly Earnings got a +0.1% revision for the last report.

This reminds me when Philip discussed about one year ago (with many analysts) if the first rate hike might come in Q1 2015. Well, 2015 might be the year where a rate hike was expected and postponed throughout the whole year.

Peter, I congratulate on that call. I have many wishes where I haven´t travelled yet on the world and for sure with this trade you made, you can pay my holidays.

One sidenot. I also analysed (like Peter above) the reactions of the pairs almost 2 hours after the report. Some interesting information: AUD has to be very weak as at the time it is the only pair which is losing to USD compared to its pre-NFP level.

Very interesting to observe exotic currencies around the world. They show a completely different picture. HUF is beating USD by a lot, TRY also, RUB is at even, but ZAR and MXN even lost ground vs. USD. What kind of a reaction is that? I guess there are huge forces, maybe a weak USD on one side, but also a safe haven USD on the other side for some currencies.

Will be interesting what the Fed says next time. Maybe it will be like always: the bottle is half full, but also half empty :slight_smile:

Take care,
FE

3935

Hi FE,

Lol, I was bullish Euro yesterday and today, difference yesterday was that I was happy to enter before the news, today I am happy with my 1%, entered only after the release. I again chose Eur instead of Gbp because of Eur/Gbp.

Flat now, would not chase , anyone who has done so will already be beginning to panic.

Next week a whole new week to get involved.

3936

Hey Peter…
Man, everytime I hear you talk, I am reminded more and more that I really, really, need to start working on the comparisons (between the pairs). You have been like this the entire year. I remember you said at the beginning of the year that you will be concentrating on the intermarket relationships. And lately you have been looking at the currency pairs relationships.
Well, this morning (as I’ve been tallying things up) I wrote something real big down to keep it fresh in my mind to embark on this…“CORRELATIONS” also with it I did write…“coupled with time frame progressions”.
That will definitely be my next big project. And I think this will help to me choose which trending pairs to get into…as opposed to all of them.

If you have any tips, I would appreciate it. Like what’s the most looked at (EUR/GBP?)
Ok, like what’s your train. Example you look at the EUR/GBP to determine who’s stronger there. Then compare that particular one to both the EUR/USD and GBP/USD. ?

Well, surely I can come up with a way to tie them all together. Then just always follow an outline to find where they sit against one another.

Thanks.

Mike

3937

Mike,

Eur/Gbp is big time important, many times you will see, for example, the guys on forexlive, mention that cable is being ‘hampered’ by Eur/Gbp etc.

I remember posting way back maybe 3 years ago that each time I enter either Eur/usd or Gbp/Usd I look in the wing mirror, that being Eur/Gbp. The importance of that cross has increased dramatically since even then.

Consider this, the amount of money (fancy term is capital flows) that cross the English channel, it is measured in billions, then consider who it is facilitates that exchange of currency, and then further consider that those facilitators are in the business of profit.

So if it happens that Eur/Gbp is thinking of breaking to the upside, those same facilitators (banks) will wish to profit by ensuring that Gbp is valued accordingly.

Shared this older story with a friend the other day, consider that the numbers are net, also take into account the source may be EU negative, nonetheless it offers a picture of the scale of FX exchange on Eur/Gbp

Britain’s net payments to EU soar by a third in a year, ONS figures show - Telegraph

3938

Mostly I trade Eur/usd and Gbp/Usd, no idea why, it’s just what I’m used to. Sometimes Usd/Jpy for scalping, but only as an add on to one of the others.

I only trade short term fx, so if a move is in play, first thing I need to know is which currency. Eur/Gbp will tell that, as will Usd/Jpy - so on Friday Eur/Gbp was ramping up, so not wise to short USD using Gbp…

But here is where the wing mirror comes in, I had traded up after NFP, and exited after a gain of perhaps 1.5%, done some scalping Usd/Jpy to get the numbers up, so in comes Mr Greed.

Eur/Usd looked as if it had the moon in it’s sights, it had cleared 1300 and h1 urged even more, why not get back in?

So I did just that (as you do when the greed devil whispers), this last entry was arounf 1310.

But watching Eur/Gbp I could see a different story, price had reached up, likely for a few stops, reason was immaterial, but it showed all the signs of reversal, so I exited the last long around minus 20 pips.

It was for that reason I posted about not chasing, Eur/Gbp was telling the story of the reversal.

3939

Hey guys…time to wake up. And let’s talk.
We have a new month ahead of us. So, let me show you how things have progressed last month and I’ll tell you what I think might happen this coming month.

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So, let me explain. The top number is the cumulative running total %. The bold bottom number is the daily % total. That’s what happened that day. The end total is the monthly candle totaled up.
Well, looking at the bigger picture (Majors vs. Comms) I think there is a change coming. Sure…they always have some good days, then drop on back down. But, just look at how the end of the month turned out. Plus look at how the beginning of the month stands now!!
And probably the biggest change that I see now is with the CAD. They have just crushed everyone in the last 3 days of the week. They were on top each day since Wed. (3 in a row)
Also the NZD definitely have come on up at the end of the month.
Actually think about the risk on/off sentiment. It sure does look like more risk on. USD, JPY, ending the month last.
And how about the GBP. They have just fallen off the map.
USD…well, it was interesting to see how Friday ended. Sure, after the news event they lost their butts. But if you paid attention to the rest of the day, they about came back around full circle. And pretty much against everyone. Was it all profit taking because of the surprise numbers?
EUR…yeah, there was profit taking the last day of the month, but it seems like they are only being pinched by the Comms. Maybe close to the strongest within the Majors.

So, what am I doing here. I’m trying to put the market sentiment into perspective. The big picture. Trying to see a flow of things.

In particular, I will be watching the CAD. Unless I see them retrace a huge amount, then I’m thinking they will continue on up. Also keeping an eye on the NZD. We all know how dangerous they can be.
Hey, if the Comms are up, then so be it. Someone has to call it… Then trade it.

FE.
I haven’t come up with a strategy by looking at that data. That’s all what’s been down on paper already. But, in such a good format.
You know, I keep remembering what our long time buddy Rookie said to me one time. He basically said that it seems like all I care about is documenting what the market has done, more than trading the market.
I think about that a lot.
Well, it isn’t one or the other. I do put more emphasis on finding the flow of the market. But in the end, I think it’s the data that is the edge I need.

Talk to me.

Mike

3940

Hey guys.
Ok. Time to wake up, again.
I’m gonna continue (whether you like it or not) to show you the flow of the market. And I really, really think we have change coming. It’s with the Comms. Look.

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Again…the black highlighted number is the daily result. The top number is the running total for the month.
And they are organized from strong down to weak (top to bottom), in the perspective of how the month progresses.
We can see that the NZD had the best day yesterday (with 7.67%), but their total for the month comes out to be 8.88%. And you don’t need to be a genius to figure out that the Comms are dominating the month so far. And also I think I’m right about the CAD. See, if you think about it, they kind of get both sides of the field. Sure, they are a Commodity, but also they do travel (trail) the USD. Are trading partners. I think they get strong when the field is in between extremes (Dollar weaker and Commodities strong). But, now, I do think, for a time anyway, there is change happening.
Look, if I would have went with all that is trending high (so far this week), I would have lost my butt. And that’s in the perspective of being farther out (weekly time frame analysis trends).
So, now I’m trying to come up with a trading strategy that points to the ‘Major/Comm’ battle. Cause your gonna get hurt if you go with longer term trend trading right now.
For me, that’s on hold. You gotta know what the atmosphere of the market is. (Dollar strong, safe haven, or risk on) And until the USD goes one way or the other, you have to adapt.

Yesterday I put on one trade. USD/CAD south. I’m trying to keep it for most of the month. So far so good. Ended the day with +20 pips.
But, I’m looking for a strategy that encompasses a basket of trades. And having the M/C angle to it.
Getting close.

Talk to me.

Mike

3941

Hi Mike,

I agree with you pretty much, wanted to post something like this too. The only concern about the commodity currencies is for me that inflation is not picking up and until commodity prices go down, it is hard to believe the comdolls will rise. Anyway, as they say: trade what you see and not what you want to see!

Peter,

I wanted to discuss something interesting with you. If I want to summarize the USD price action for 2015 in one sentence, it would look like this: for strong US data the USD got stronger, for weak data it made some correction and got back to its track.

However as we know every trend comes to an end. There comes to a point where we say that bad data “will not be corrected”, but the trend will change. The last NFP Report was not only bad in my opinion, it was horrible. And until now even with bad US data with always said that the US economy is doing a lot better than its counterparts. We also cannot say that forever as the other economies also pick up. So if there is maybe 1-2 such bad NFP Reports then a rate hike expectation might completely off the table. What do you think?

FE

3942

Yeah, the Fed are strange - the daily USDX tells the story so well.

I can remember being sarcastic way back in the Spring by asking is the USDX heading for the moon, it was rising on June hike talk, then the data began to change, then we had Sept, now possible Dec.

Back then many were asking why now?, still they ask the same question, my guess is because they want to, they feel that rates have been too low for too long and that the longer rates stay so low then the more difficult it will be to raise and that being later the effect will be more negative.

My guess is that is the type of argument that the hawks are making in the meeting, they likely add that a small raise will have minor negative impact now and that markets, have been conditioned to the idea that rates have to rise and better sooner rather than later.

Gold traders are intriguing since the latest NFP, they seem to be betting on a lowering of USD.

My own feeling is that the hawks will get their way, if not Dec then the spring of 2016 - it may not necessarily lead to a resumption of the USD rally though.

3943

Hi Mike,

I decided to go with NZDCHF long. Are you in any trades?

FE

3944

Hey FE…
Yep. I said this on the last post. And I’m still in on it. USD/CAD south. Just checked now. I’m up over +90 pips. And also I said that I wanted to keep it for the entire month. But…you know how hard it is…to keep looking at profit in your bank… OK…I’ll at least keep it for the week.
And BTW…I have a 10k size on it. That’s pretty sizeable for me. I’m used to having a basket of trades going, with only 1k sizes on each.
I’ll come right back with the picture of the flow.

Mike

3945

Well guys, it’s stillslanted to the Comms.
FE, good job on the NZD. I’m thinking Comms for now, till I see differently.

Yesterday went to the AUD, with 3.93%, then NZD with 1.54%. The CHF was the strongest Major.
But, we can see that the Comms are having their way so far this month. There definitely was a lead up to this, at the end of last month. (Ahem…I’ve been noting this lately)
Oh, and another thing I’ve been mentioning, is how the JPY always seem to be close to the USD. And now it’s the caboose. I guess the safe haven run went out the window, after last month.
We also need to think that this is the last quarter of the year. So, I don’t know what that means, but, I can guess it means something. And probably some kind of change to take place. Right now all I can see is more risk and less safe haven.

Any other thoughts?

Mike

3946

Hi Mike,

no other thoughts. I agree with you. Last week and this week I closed all long-term trades vs. comdolls. The signals came one after the other. I thought the trends will go on longer but they didn´t. In a relatively short period of time for other pairs even comdoll buy signals came. I like buying them more because I recieve the carry trade which is quite important for those long-term trades.

FE

3947

Here is a present for you, Mike:

Currency Strength Meter Indicator

3948

Yep FE, that is awesome.
Thanks.

3949

Guys.


–NZD took the day. The strongest for the month. Top dog.
–AUD came in second. Very strong also.
–GBP a close 3rd behind the AUD. Made a huge leap up for the month. Strongest Major now.
–CAD lost some yesterday, but their total is still very much more than any Major.
–COMMS ruling the market, so far. This is the first time in quite a long time.
–CHF was the loser yesterday. (You go FE)
–And, well, the USD and JPY are, for the most part, bringing up the rear. They travel in pairs.

Mike

3950

Hey fellas.
Any one still with me?
Well, guess what.
I have found the holy grail.
It was under my nose the whole time.
But, I can’t tell you, cause then everyone will start getting rich.
OK…maybe you don’t believe me, but, I do have to say. This strategy I developed is gonna take me to the next level. The more I back test it, the more I just cannot believe the results.

I’m telling you…I am on to something.
BIG

Mike

3951

Hey Mike!

I have been following the posts on and off, had some trouble logging onto baby pips. Guess I came in just at the right time. I think I know what you’re referring to with the holy grail.

Screen Shot 2015-10-09 at 12.42.22 PM.jpg700×262 25.2 KB

I think the tide is about to turn once again look at GBPCAD. I remember from one of your tallys CAD came up the strongest but the last few sessions it lost it to NZD. Like you said everyone has their turn in this game. CAD weakness was prominent across the board since early this week. And I had been eyeing on GBP and EUR crosses to turn up, well the first one was GBPCAD and its been holding up post BoE and FOMC. If you look at USDJPY and USDCAD and some more EUR&GBP crosses you’ll notice the same thing.

A lot of comms are reaching a major level and based on these indications I doubt if the rally will continue onto next week. But of course anymore disappointing data from US and UK will keep this going.

Do you have any indication of majors turning up next week ?
I’m inclined to think so and ready to jump up on any volume buying on EUR & GBP crosses.

3952

I decided to do this because I came to the conclusion that a lot of the forecasts a massive rally in gold, a disaster in the stocks worse than 08, the fall of the US economy and the like has a lot of self interest behind it. For example, I discovered that a lot of the people discussing the massive rally in gold actually sell it. Other people who claim how deflationary the US dollar will be are actually looking at the next 18-24 months, looking beyond that we can actually reach very different conclusion.

Now I will be back to my controversial, but the point of this is not to act like I’m different to anyone. But to have a more thorough discussion of what we think the future holds for the markets, like we always do. Your input to the discussion, like always, will be much more valuable than the post itself.

An important note
1-The most important thing to know that over 10,20,30 and 50+ years…holding the dollar is the worst investment you can have. A simple compare feature on Tradingview backs this up:

investment return.jpg700×525 35.2 KB

This chart, dating back to the 70s, shows the USD (the black almost non existent line) as the worst thing to own over time. It is followed by gold, bonds (prices), emerging market stocks (important to note the data available is for only 15 years) and oil.

2- So when someone tells you dollar will appreciate and its the best investment to have now. He is probably focusing on the next 12 months or 24 months. So your age will determine your asset allocation, the younger you are (10+ years until retirement) the more you should focus on investing your savings in stocks and hedge some of those savings in commodities.

3- Stocks is the most diversified asset class. It is the only asset class that can be purchased at any time. For example, I did an analysis of the Fortune 500 and as you would expect a lot are over priced. But many fantastic oil companies (such as Chevron, Halliburton, Baker Hughes) represent a fantastic opportunity to invest your savings in a stock. Now if the stock market crashes, assuming you buy a few stocks each quarter, you will get those companies for a cheaper price and a higher dividend. So a stock market crash worse than 08 may be the best thing for us.

Moving on…

3953

To me the global politics and the market is driven by a game played by two major forces, US and China. Even Russia, to me, more like a military arm for China.

So what does those two countries want:

[B]USA[/B]
The main thing we need to understand is that the US is a debtor nation. It is paying debt. It is in its interest to pay debt in the future at a lower value than what it has borrowed. This tells us three things:

  1. it wants a lower dollar. When the value of the dollar goes down, the value of the US debt decreases. If I borrowed $10 for you to return in 5 years. If the value of the dollar decreases 20% in those five years, I would only pay back $8. So how does it do that.

  2. Higher inflation. The US cares about inflation very much, even more than employment. It is imperative to the US governments that inflation kicks in to help its debt situation. And what does that mean?

  3. Higher commodities. That means the US wants a higher gold an oil price. Not to a hyper inflation level, but the US does not benefit if the price of oil and gold goes down.

This is contrary to the belief that the Fed is actively pursuing a strong dollar through its policies. So who wants that strong dollar?

[B]China[/B]
China is a creditor nation. It lends other people money. This leads to three conclusion that are the exact opposite to the US.

  1. It wants a stronger Dollar. They wouldn’t appreciate a depreciation in the value of the dollar.

  2. Lower inflation. That would decrease the rate of depreciation in the Dollar.

  3. Lower prices of gold and commodities. That is also because China buys those commodities, then exports them as finished goods. So it decreases the cost of production.

Now its important to note that both countries do not want the extremes. US doesn’t want hyperinflation, and China doesn’t want deflation. This is due to the negative effect those two extreme levels would have on each economy.

So what we see in the market is the reflection of the interaction of the two wills. Now the US is happy with the current status quo. China on the other hand would prefer a revision in the reserve currency status.

The key thing is until there is a change in that status, the current struggle will remain. China meanwhile will look to buy gold at depressed prices to hedge against any fall in the value of the dollar.