Weekly technicals challenged by risk-on appetite, ECB in focus
Commodity currencies’ AUD and CAD outperform, safe haven JPY and CHF in retreat following week of improved risk appetite.

EUR/USD: It’s all about the ECB this week
While the pair’s price managed to finish higher after suffering intraweek lows, it hasn’t managed to shake off its bear trend channel and undo what are primarily bearish technicals with its price below all its main weekly moving averages but where the remaining main technical indicators are neutral. But this week has got little to do with technicals, as the ECB is set to announce its monetary policy, a central bank that certainly isn’t in an enviable position given worsening Eurozone data and government bond yields in negative territory. With expectations for further easing, if it doesn’t match those expectations then it isn’t just the euro and Eurozone bonds that will be in trouble, but equities as well. From an institutional standpoint, both long and short positioning has increased ahead of the event, the former up by 12.7K lots and the latter by 23K lots, taking euro majority short bias up a notch to 56%.

GBP/USD: Rising off the lows thanks to a less likely no-deal Brexit scenario
Brexit was in full focus last week with the likelihood of a no-deal Brexit scenario aiding in taking the pound off fresh 1.19 lows suffered earlier in the week. And while there’s UK GDP and manufacturing data today, and employment data tomorrow before attention shifts to the ECB and US tier 1 data, it’ll likely take a back seat compared to any further Brexit updates and political news. Technicals mean little in the face of such fundamental forces, and the retracement off the lows has ensured its bear trend technical overview continues to stall where most of its indicators are now neutral (though on the daily more positive technical bias is forming given the near 400 tik recovery putting a wrench in its technicals). In terms of bias, institutional sentiment remains heavy short but down a notch thanks to a reduction in shorts by 3.5K lots and a simultaneous slight increase in longs by over 0.5K lots.

USD/JPY: Risk-on week keeps the yen lagging
The yen underperformed last week alongside other safe haven currencies following what was a risk-on atmosphere given slightly reduced risks. Positive technical bias is starting to form in the short-term on the daily chart but is running up against long-term bearish bias on the weekly even if a positive DMI cross occurred last week. Risk-on/off scenarios have been the key driver for this pair, with the absence of any risk-related trades keeping the pair’s price relatively range-bound, and breakout strategies outperforming when they are present. In terms of institutional bias, appetite for the yen is waning with a reduction in yen longs by 2.6K lots and a simultaneous increase in yen shorts by 3.4K lots, and taking majority short USD/JPY (大口) bias (i.e. majority long yen bias) down 4% to 66%, near opposite majority long sentiment held by retail traders.

USD/CAD: Canadian dollar outperforms alongside other commodity currencies
With the Bank of Canada on hold last Wednesday and Friday’s Canadian employment figures better than expected and contrasting a relatively weaker NFP, last week’s plummet undid four weeks of gains and erased the positive technical bias on both the daily and weekly as the pair’s short-term resistance level held. Given energy prices have been range-bound as of late and finishing slightly higher, CAD’s energy underlying has benefitted in the process and has taken the pair’s price to finish below its 50-week moving average, with the 200-week the next main long-term MA. Canadian data is relatively light this week, while US tier 1 data will be closely watched ahead of next week’s Fed meeting. Institutional traders had been piling in buying up CAD anticipating further gains, yet they mistimed the last week’s weakness given they increased CAD shorts by 5.5K lots right before USD/CAD’s decline.

AUD/USD: Australian dollar outperforms for the week thanks to a risk-on mood
Commodity and high-beta currencies are always in need of a risk-on mood to aid their respective underlying, and hence last week’s increase in risk appetite ensured the Australian dollar outperformed, as well as the kiwi and loonie. The net result certainly helped undo some of its negative technical bias (especially on the daily chart), but a brief look at the weekly price chart and its clear it still has a mountain to climb to break out of its bear trend channel. But that’s not to say retail traders are complaining, as they reduced their heavy long bias by 14% since the start of last week on long profit-taking and have been significant beneficiaries of the latest moves as they unwind longs that were stuck for weeks. Institutional traders on the other hand – while still heavy short – have reduced that bias slightly on an increase in AUD longs by 2.2K lots outdoing a smaller 525 increase in AUD shorts.

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