I continue to hold a short AUD/USD bias from last week and from an economic point of view the Australian economy will be a must watch region this week.
I quite like the price action in EUR/GBP from the long side and look to play possible position adjustment.
GBP net-long positions on the weekly Commitment of Traders report (CoT) have been scaled back since early July, but speculative funds still hold a strong net-long bias of 24,000 futures contracts. On the other side of the equation, net shorts on the EUR have blown out to the highest level since August 2012.
The CoT is a good guide as it measures activity for the speculative community who acts much more short-term than exporters and central banks.
Fundamentally, the market has priced in rate hikes from the Bank of England, with many in the market now expecting the Bank of England to lift its cash rate in November. This could curb some of the upside in sterling for now.
The September 18 Scottish referendum could still be a source of concern. The polls are close and with 15% of the electorate still ‘undecided’, there are still some risks that the ‘yes’ vote comes to fruition. Again this could keep sterling rallies contained.
In Europe the ECB meet this week and while some will be focused around a framework for more aggressive action, the central bank should be fairly enthused by the recent increase in bank lending and money supply. These metrics are widely seen as a leading indicator for inflation.
Technically the downtrend drawn from the March 24 high was broken last week. On the daily chart the MACD continues to move higher above the signal line showing the momentum that is building and you can also see this with the five-day moving average pulling away from the ten-day moving average.
Traders could look to place stops below the July 23 low and look for a move to the 61.8% retracement of the March to July sell-off.