British Pound Soars Amid Dramatic Rebound In Interest Rates

The most significant move in futures positioning (into September 12th) was with the British pound, as sentiment improved markedly heading into last week's Bank of England (BOE) meeting.The Monetary Policy Committee provided the markets with the 2nd hawkish surprise by a central bank in as many weeks, helping thrust Sterling to post-Brexit highs and interest rates (globally) to recover off 2017 lows. The latest Commitment of Traders (COT) report also highlighted the continued unwind of the yen carry-trade, prior to last week's reversal in the "risk-on" trade, which has seemingly caught traders off-guard.Meanwhile, US equities continue to chug along, as the major averages collectively trade at or near all-time highs as next week's focus shifts to the Federal Reserve.

The British pound soared to fresh post-Brexit highs after the BOE unexpectedly hinted at an imminent rate hike. UK bond yields and the sterling both soared as the market was clearly caught off-guard. According to the most recent COT report, large speculators were increasing their long exposure heading into meeting, adding the most amount of (gross long) contracts since April. Meanwhile, retail FX traders continued to fight Sterling strength all week long, as retail FX optimism sunk to near the lowest level for the year. That said, both times retail sentiment reached these levels (this year), the pound had begun to top-out. Large speculators, however, seemingly under-own sterling and are clearly increasing their exposure to the British currency. This hints of a re-test of the 1.3831/1.3948 region either immediately or once overbought headwinds are unwound a bit. Look for the 1.35 psychological region to cushion dips to the downside.
 

The EUR/USD has pushed through the psychological 1.20 mark twice, but has failed to close above it. This puts the single currency in peculiar spot, where the trend is clearly higher, but the ascent looks a bit exhausted. The 10-month improvement in euro positioning has stalled as of late, but remains near the largest net long position by (non-commercial) speculators on record. Meanwhile, according to recent retail FX traders positioning data, the retail population looks to be increasing their euro exposure. This is probably due to negative market psychology towards the US dollar that is feeding into the minds of retail traders, who are notoriously late when it comes to moves in the market. If the 1.1840 region remains supportive, the next key (upside) objective is 1.2138 or the mid point of the overall range since 2014. If euro strength, however, were to stall anywhere ahead of the 1.2070 area (to the upside), then it could set the stage for a broader correction.
 

 Large (non-commercial) speculator's have been paring back bearish bets against the yen or the so-called "carry trade", as the percentage of long positions improved for the 7th straight week. Although the net increase was a mere percent, it continues to highlight the short-covering of the yen carry trade that had just recently reached a 2-year high. Since September 8th, however, the USD/JPY has squeezed higher, seemingly catching the market off-guard by correcting back to midpoint of the recent range just below 111 (USD/JPY). Interest rates around the world have also followed suit, as many traders and investors got lulled into thinking that rates and the (US) dollar would remain low for sometime.In the span of two weeks, we've seen the Bank of Canada surprise markets with a rate hike and the Bank of England surprisingly prepare markets for a rate hike, and this week the spotlight is on the Federal Reserve. If the retail population continues to sell the dollar vs the yen as they did last week, then a sustained push through the 110.82 (USD/JPY's range midpoint) could materialize towards 111.70 then 112.88. A dovish Fed, however, could quickly re-open the 107.29 (September 8th).
 

Bullish sentiment by Australian dollar (large) speculators has stalled ever since net longs reached 78% nearly 2-months ago. The recent move (up) through the July high at .8066 was brief and spent most of last week consolidating. Technically, the Aussie is at a cross-road, where the latest trend (up) looks to be losing steam, but subsequent dips seem to find its footing at a relatively high level. Typically, in these situations, the "trend (up) is your friend", butan inability to clear .8066 (to the upside)could re-enforce bearish divergences seen on both daily and weekly charts. This would also relieve some of the extreme (long) positioning in the Aussie by (non-commercial) speculators and increase the odds for a sustainable move through the recent high at .8125 towards .8455. That said, a clean loss of .7835 (to the downside) would suggest a much more meaningful decline.
 

Canadian dollar bullish sentiment by large speculators has steadied since early August after having seen both the net long tally and net long percentage advance the prior 3 months. Meanwhile, after reaching a fresh 2-year low the prior week, the USD/CAD spent all last week in a tight range near the 1.22 handle. The most recent retail FX data indicates that the retail trading population is starting to follow Loonie strength, which is typically a bearish development.Also, with weekly RSI diverging, further Canadian currency strength could be rather limited until the rather crowded net long position by futures speculators can unwind a bit more. That said, the technical breakdown in the USD/CAD looms large and could extend lower if the Federal Reserve disappoints next week and broad dollar weakness re-emerges.
 

Gold futures sentiment waned according the latest COT report, as net long positions by percentage ticked down for the first time in over 2 months. More importantly, Gold futures managed to erase all of it's monthly gains just last week, as retail traders have seemingly returned to buying the yellow metal. While, this could temporarily guide gold futures lower, so far the latest move down looks to be of the corrective type. Gold bulls should remain in control while the 1300 handle remains supportive to the downside . That said, last week's price-action serves as a reminder of how overbought price-action is on both daily & weekly charts. If, Gold futures resume strength early on next week, however, this latest correction could represent a mere pause within the latest broad up-trend that could target 1450, once 1375 is fully cleared to the upside.
 

Crude oil futures last week probed above the psychological 50 threshold for the first in over a month, highlighting a bullish breakout of a declining trendline that's been in place since February. Positioning by futures traders (into September 12th) stalled in terms of net long positions and percentage, as (gross) long positions dipped slightly. While, the technical outlook has remained confined to a well-established range between 45 & 50, a sustained push beyond 50.46 (July 31st high) would shift expectations (higher) towards 52 then 54. That said, losing 49 to the downside could usher-in further ranging and expose the 45 handle again.
 

E-mini S&P 500 futures reached another all-time high last week. Speculative sentiment (into September 12th) edged higher as E-mini S&P 500 speculators added gross longs quite substantially. The net long percentage, however, has pulled back from fresh multi-year highs to suggest that large speculators are cautious, but remain relative optimistic going forward. It will be interesting from a longer-term perspective, how price-action reacts at the psychological 2500 level, considering potential bearish weekly divergence. That said, last week's price-action was especially promising, as the previous peak in August reverted as support once broken. It does seem, however, that equity markets need some sort of news event to launch price-action into a new range, and that event could be the FOMC. If, the Federal Reserve turns out to be a disappointment (for equity markets), then critical 100-day moving average support could quickly be re-tested (to the downside). 
 

Nasdaq 100 futures speculators mildly increased gross longs in the latest COT report. This allowed for the net long percentage to inch up to 64% heading into the close of last Tuesday's trade.Subsequent price-action suggests that technical headwinds such as weekly (chart) divergences could potentially limit further strength. Moreover, the lethargic mood exhibited by non-commercial traders, hinting that Nasdaq 100 futures could struggle to make headway without some sort of bullish news event that can trigger separation from the August highs. The FOMC this week has the potential to be that catalyst for equity traders. If, the Federal Reserve, however, were to disappoint equities, it would still take a sustained loss (by Nasdaq 100 futures) of the 5800 region to shift the overall trend lower.
 

US 10-Year futures reversed quite dramatically last week after spent the previous 8-weeks grinding higher. While this move has seemingly caught the market off-guard, the most recent COT data also continued to point out that (large) speculators were not fully participating in the latest move up in price-action. While weekly technical divergences correctly hinted of the broad false-breakout reversal in bond prices, the outcome of next week's FOMC meeting will be the deciding factor whether the recent sell-off continues. A hawkish Fed could quickly re-open the May/July base in the 125 region, and a dovish Fed could see a re-test of the recent yearly high.
 

US 30-year futures speculators optimism has stalled, according to the latest COT report, as bullish sentiment continued to pull-back off its 2017 high. Gross longs, however, remain near their highest level since 2008, while gross shorts increased by roughly 4K contracts. The latest moves exhibited in sentiment coupled with a hawkish Fed next week could eventually steer US 30-year yields back towards 3.00%.