COT Report Analysis - a thread on market sentiment

Trading Discussion News and Economy
3537

New Zealand dollar’s three-year commercial index is at 100. This should mean that a bounce in New Zealand should take place in the future. From a technical-point of view we are yet to see a divergence in NZDUSD.

However the Eurnzd is diverging on the 1 hour-4 hour. A sell order 10 pips below the low of 1.59931 seems like a good trade. Stops would be 10 pips above the 1.6150 area. Target should be 1.5942 and all the way down to 1.57.

this is really the only thing I see. Given that commercials are on our side you might want to trail stops rather than set a profit target. What do you guys think?

3538

Hey guys.
Yeah Philip, that’s interesting and thanks for that (your work on the COT report). As you know, from last week, I’ve been waiting for something to happen, like a bounce from them. But it surely didn’t happen last week. In fact they just dived even more after that surprise rate cut. Early in the week they did start climbing up though. See, we traders are so accustomed to seeing things bounce. But, we also know that ‘past results don’t necessarily predict future results’. So, seeing this rate cut, I think it might be a sign that they don’t think the price is low enough and need more reason to adjust their numbers. Look, I’m not by any means an economist. And the best we can do is weigh out all the reasons, in order for a clue to see where they might go. And it would be either one way or the other. Will the NZD continue on this slippery slope, or will it bounce? Ok. What do we know now? The flow is down. It has been like that for some time now. You said the COT report is at 100 now. Which, in the past, sort of means there’s a likelyhood of a turn. We just seen a rate cut. That means a lot. (We need the Doc to explain) But in any case, it spells trouble for their price. Hey, do you remember earlier this year them raising their rates more than once?
Now I’m thinking that was a mistake on their part. But I guess they had to do something to get the price down (and I’m sure for many other reasons also). So, at least we can see that their trying to do something about it.
But in the mean time, this is what I’m gonna be thinking [B]moreso[/B]. The NZD is on the slippery slope. And until I start seeing a change (whether a ranging condition, or a big u-turn) then it’s gonna be betting against them. I’ll sacrifice pips to see it happen. And hopefully only one time.

I’m trying to operate in the ‘now moment opportunity flow’. (It’s just what I’m learning that’s all)
And it makes sense to operate that way, instead of thinking of the future and what might happen. I guess I will find that out by taking a loss. It’s the cost of finding out a turn in the market.
On the other hand, if the flow keeps going this way, then I should be continuing to make the pips.

Bear with me guys (Philip). I’m just talking to myself. Cause that’s what I need to hear, and how my mind should be thinking.

Thanks for listening.
I’m coming back with my thinking on the entire field.

Mike

3539

Hey fellas.

Facts:
—The Majors have dominated the field every single week since April (2nd,3rd week only).
—The biggest ‘Major’ mover up was the GBP this past week. Before that they were next to last and last.
—The CHF is the strongest currency across the board. And have been since the last 7 weeks, except for only one other week (4 weeks ago the GBP edged them out by a little).
—The EUR has climbed 3 weeks in a row now. This past week they slowed that rate though.
—The JPY ended up 2nd this week, just a bit behind the GBP. This is a change. And I think there’s some fundamental news flying about the JPY that might make this a beginning of a turn around.

Here’s some numbers for ya. Year to date %'s. These are all totaled. So, just compare them.
—CHF +77.35
—USD +25.38
—GBP + 24.78
—JPY +1.93
—AUD -17.48
—CAD -20.36
—EUR -30.79
—NZD -60.81

In May the EUR at one point was over -50% down. We all know they have come back.
But this is interesting to me moreso about the JPY. Across the board, all pips totaled up against everyone, from the beginning of the year, they are still in the positive. Believe it or not in the start of May they were second on this list, behind the CHF, with +13.71%. Yeah, they dropped lately. But not in the negative yet.
So, I think the point is their someone to respect. They can come back up, if they were already up there.

—I’ve mentioned this before. The Majors have all had a turn at some point. And collectively they dominate over the Comms. So, it’s kind of knowing an edge. This is the present flow of things. And not to forget that this is the big picture. It’s an overview of how the year has progressed. Which is good to know. But anything can happen on a daily basis (as you guys already know). ‘you can call me captain obvious’

—Tuesday of this week is the Global Dairy Trade event. Here’s the history shot.

2015-06-14_0837.jpg700×348 18.5 KB


Do we know of any seasonal data on Dairy Philip? Well, it sure does look like there must come a bounce huh?
Or will it? Maybe we’re entering into a new era? I know I would like to see it continue on down and make our jobs a lot easier.

—Here’s a strength meter. This is how many trends I have. (weekly)
CHF—against 6. All except the GBP.
EUR—against 4. USD/JPY/AUD/NZD.
GBP—against 4. USD/JPY/AUD/NZD.
USD—against 2. JPY/NZD.
CAD—against 2. JPY/NZD.
AUD—against 2. JPY/NZD.
—Here’s the opposite. How many is trending low against. Weakest.
NZD—against 6.
JPY —against 6.
USD—against 3. CHF/EUR/GBP
AUD—against 3. CHF/EUR/GBP (very very close to CAD, on the line)
CAD—against 1. CHF
EUR—against 1. CHF
And the GBP is border line trending high against the CHF. I feel they are a bit stronger.

Well, there’s some facts for you.
Now this is what I’m thinking.
I’m thinking the USD is sliding. Well, it is factual ever since NFP they have dropped (which is this past week)
I will stay away from betting against the JPY. The only one I can go with would be the NZD/JPY. But, I need to see that drop some before I would go in with the Yen.
NZD, I would bet against. I am not going to be afraid of them. Their down! So, until I see a significant rise, their in my cards.
I would bet against the USD.
I would bet with the CHF and EUR and GBP.

What you guys thinking?

Mike

3540

I’m with you Mike!

I have GBP/USD (long), GBP/NZD (long), NZD/JPY (short) and USD/JPY (short) on my watchlist for the next week.

3541

Hi Philip,

I am with Mike with NZD. I am not sure what you want to do with that bounce. I mean it is risky to trade against the trend, because you do not know how big is the bounce. Or you just want to wait and sell NZD at a better price? Mike pretty much put all the facts together why NZD loses.

What got my interest, all three of us (Mike, BB and myself) spotted 1 trade where to go long with the JPY. It is vs. NZD. I am not sure if you guys remember, about 1-2 weeks ago I asked Philip what he thinks of that setup. I opened the trade and it looks good. Not a huge winning but okay (+185 pips now). I like how we all spotted it.

I am also long EUR/NZD, but maybe I should have taken BBs GBP/NZD long instead. I am now at +994 pips with that one, but I believe GBP would have been a lot more.

FE

3542

I only shared my findings on the COT, its not my personal opinion. Personally though, I don’t mind losing a trade as long as my risk is less than reward. This is what matters to me personally.

Having said that, I’m not trading anything except after the Fed. This is the biggest event I’ll witness since joining the thread.

3543

Yeah, it has the potential to be big for USD bulls, I’d say they are hoping - but it could be more of a fizzle than a bang.

3544

I’d have to say for both dollar bulls or bears. Even for those who trade the S&P. Over the very long-term (2 years-5 years) the dollar is bearish because deflation is real (contraction of money supply).

But this event is key, in my opinion, for both bulls and bears because now the Fed is put in a tight spot. Even if it doesn’t raise, a clear indication that it will raise this year will be bullish. But on the flip side a statement with no sign of hiking on the horizon will also be bearish dollar for at least three months.

In other words, it seems anything the Fed will do will just upset the market in some way.

3545

Hi Mike,

I agree with pretty much everything you’ve said. You’ve summed it up nicely. I would like you to think out loud more often. I haven’t been following Central Banks statements for a while now, had to look up on RBNZ latest release.

And here’s my sum up, I think NZDs current position is a little worse than just a slippery slope. Global economy is in standstill , EZ and Japan showing some growth and mixed data on Australia and US. Probably not the best time to hike rates, I remember them being on a rate hike frenzy. Inflation is set to be delayed with drop in oil and dairy price and demand. Its current account balance is expected to deteriorate. With that being said the Central Bank thought it was necessary to cut rates to balance things out. Well we thought NZD can’t keep falling straight, how about some correction ? RBNZ is set to take whatever measures it can to keep things afloat even if that meant further easing. If I’d read that earlier I wouldn’t wait for a bounce back :slight_smile: just saying.

3546

I wanted to share this video because I felt it articulated perfectly my perspective of the market in terms of dollar, commodity prices, emerging markets and deflation.

I also felt I had to share this video because it is in contrast Peterma is presenting (which I disagree with) that Euro is rising in performance, the threat of inflation is falling and dollar would fall as well.

I thought sharing the video would enrich the ongoing debate :slight_smile:

3547

Hi Philip,

Had a quick look, video dated Jan, many ppl were flagging 1.22 as the line in the sand, that line was indeed broken since that video release, but yet the Euro has since risen above it.

The threat of deflation is receding (not inflation as per your post) in EZ and UK, which is helping the rise in both currencies - I’ve mentioned reasons earlier.

The author is correct regarding the lack of hedging on USD by companies, I mentioned that earlier.

The author mentions the importance of USD and USDX (DXY), he refers to the latter as a ‘basket’ but doesn’t mention that the basket is 57% weighed by Euro, so the two currencies should be viewed together, often the see-saw effect weighs on one or the other.

(Example the decline in Euro caused by a number of economic factors including threatened EZ deflation helped accelerate the USD increase, so when a person is contemplating say a current trend in USD it can be prudent to view any similar trend in Euro)

Anyways - still my thoughts :slight_smile:

http://forums.babypips.com/fundamental-ville/66162-cot-report-analysis-thread-market-sentiment-327.html#post693107

3548

Yeah, I think your summary of his analysis make it less relevant than it is.

He was saying basically that technical analysis shows dollar strength across the board. And if the dollar breaks above these levels, then we will have 1) a very strong dollar for some time. 2) Falling commodities and devaluation of currencies, particularly in Asia. 3) Fall in the Emerging markets equities. 4) Deflationary environment. 5) Fall in US equity and dollar along with inflation.

What was his strategy? Buy the dollar when the washout of these levels happen to get ready for the REAL surge in the dollar, which he estimated to take place at late 2015.

[B]So the fact that Euro increased and Dollar decreased is actually in line with his analysis. [/B]

This is basically the core difference…Is the rise in the Euro, a EURUSD short squeeze or a reversal? This is where we disagree.

Of course I also disagree with him in that, my technical analysis shows that we will see a rise in the Dollar in the coming weeks. To be very specific (Because I know FE appreciates that)I’m talking about between now and August 1. I cannot be more specific than that because the analysis is done on the weekly chart. If I go to the monthly chart it might take even longer. But what’s inevitable to me is Dollar strength.

Of course I’m not just talking for the sake of debate. But discussing these ideas with you help me not get too excited. Because when I know that other traders I respect have the opposite opinion it keeps me grounded and focus.

The FED today, whether they are hawkish or dovish, will give us their thoughts on the matter. Because its important to know it how they raise rates as well. For example let’s say they raise rates by 0.25% (very unlikely), but if they say that’s it we are not looking for another hike in the foreseeable future, that could send the dollar down.

On the other hand if they do not raise rates (which is the most likely thing), but give a clear indication that they would hike in September or December, that is very bullish.

So let’s wait and see.

3549

Hi Peter,

it is hard to trick you, you found all weak points of the video. I agree with you in all points.

Philip,

as you said I appreciate to be exact. You were exact with their date and I like it. This is important because it can happen that we are all right. Important is that Peter is a daytrader and you are more like a position trader in my opinion. So Peter is buying EUR (and actually me too, EURNZD 1000+, GBPAUD 500+), but he does not want to hold the trade for months. If he thinks the sentiment changes then he goes south. He takes often profits between 50-100 pips as far as I see his trading. You go for the thousands and you are ready to hold the trades for months.

As you shared your opinion on USD, I share quickly mine: it is in the middle of the pack for me, beating Asian currencies and losing vs. European currencies. I am talking about daily, 4H and 1H charts usually.

And thanks for starting the discussion, it is a good one. As you also said, we are here to discuss, make decisions alone however if all others are against us then maybe rethink.

FE

3550

Yeah, I am day trading Eur/Usd by necessity - if we ever get rid of the Greek risk, either by Grexit or resolution, then I will attempt to get a position on - in the meantime I have focussed on Euro buying this past 10 weeks.

Prudently flat at present, even exited yesterday’s long S&P - tomorrow is a new day - long again on both ?:slight_smile:

3551

Hey guys.
Well, I made 100 pips on EUR/JPY, and 100 pips on EUR/AUD so far this week. I only have one more EUR.
EUR/USD. It is presently running. Since beginning of the week. I know something is gonna happen. Like really soon. News out in a few minutes. At the present I’m up 20 pips. But fireworks will begin shortly.

And begin.

3552

In fairness to Raoul Pal I haven’t absorbed his entire video, will watch again later.

In the meantime I will again have a look at the trend in the cpi numbers for EZ.

When asked directly in Mid March on TV whether Europe was facing imminent deflation he answered “for sure”, yet this very minute I hear an analyst say that UK inflation is destined to ‘bounce back’ at the end of this year and that the 2% target is very much in BOE thinking.

We know how traders talk of trends, usually price trends, but I mentioned before, is there such a thing as a fundamental trend, if I were to say that a given set of most recent monthly numbers were: -0.6 / -0.3 / -0.1/ 0 / 0.3

Would that be fair to say is an upward trend, just like 0.4 / 0.3 / -0.2 / -0.6 was a downward trend in the preceding months (numbers are EZ inflation rate)

It’s a similar story on cpi EZ: 116.03 / 116.78 / 118.11 / 118.40 / 118.66, likewise on core prices.

3553

Some crazy movement caused by the FED, if I am not mistaken.

3554

Peter,

Would have given 5 likes for this analysis if it was possible.

BB,

yeah, I also just got to my computer and see the reaction. I have not checked the news yet but it does not smell like a rate hike :slight_smile:

FE

3555

Maybe it was more of a fizzle than a bang after all, although hoping that Mike is happy with what little fireworks there has been :slight_smile:

3556

The thing is you’re discussing deflation in terms of price of commodities. But there is another definition of deflation, contraction of money supply. This eventually leads to lower prices. QE is deflation in a sense.

So the Euro, as a currency, is not the target of deflation talk. The idea is very simple, if the dollar strengthens and since commodities are priced in dollars, the price of commodities will fall.

We saw a preview of that during the run that started in June 2014 until January 2015. Now things seem to be doing better, but its not because ECB’s QE. Its because the rise of the Dollar has taken a pause. Which is more than normal after such a run.

Now which ever way you look at the monthly charts, the US Dollar is bullish. Now it is normal in a long-term trend to have this long-term retracement. The Dollar can go to as low as 84 on the DXY and this still would be a retracement.

If you are day trading of course you do not need to worry about that now. But if you let’s say hold forex positions for a month or more like I do sometimes, I’d say its a dangerous game to sell the Dollar now. Or at least that selling the Dollar is a counter-trend trade.

Now unfortunately there doesn’t seem, at the moment, any scenario that will change that specially with rates at 0. Rates will have to go up in preparation for deflation, not because the US economy is doing well.

So my plan will be to try and hunt the turning point in dollar for very small risk and keep doing that until I catch the trend. I would also look to buy physical silver and just hold. Now if things play out the way I see them, I will eventually sell the Dollar and Silver in order to buy stocks and then hold them for a long time.