Forex Weekly Report 12-07-2020

Hey Ledges! I hope you are doing incredibly well because I am! Now, if you are lost about the markets I will summarize it for you in the next sentence. The news is still Covid-19 and markets are still given a fuck at it. Ok!?

This week I prepared two analyses for you!

  1. EURGBP
  2. GASOLINE RBOB
EURGBP - BEARISH BIAS

With good news coming from the UK about its economy reopening, and a Leaked Liz Truss letter can add tailwind to the now fragile Britsh Pound.

The letter reads like a strong case for extending the Brexit transition period, to give all parties more time to get ready. But Truss and the British government have consistently ruled out the prospect, deeming it ‘crazy’. The U.K. will set out its so-called border operating model in full next week. Source: Bloomberg

 

Coming from COT DATA a triggered stochastic sell signal at the same time big specs net positions are hovering near an extreme, similar level that we saw in September of 2017, right before a big drop of almost 500 pips.

Historical volatility tells us that month of July is an extremely boring month for EURGBP ranging only 242.9 pips from Low to High. We already touched the expected High for this month and we are pretty close to touching the expected low.

This makes the case for a big drop even more strong. Remember that the guys that trade EURGBP are the same that trades GBPUSD, to refresh your mind watch 5 minutes from this CFTC COT Report Video and you will see how the modus operands of these folks are!

Another interesting thing to note is the bias calculated using half-life on top of big specs net positions. The bias changed from bullish to bearish on 30-06-2020 and is expected to remain bearish until 26-01-201.

Right now they have tons of EURGBP to unload and these are excellent levels. I am holding a bearish view on this pair.

EURGBP COT CHARTS

EURGBP COT Charts
We are seeing the same net positions levels right before a major drop in September of 2017.
Expected High and Low
EURGBP EXPECTED HIGH/LOW/CLOSE
These levels are calculated using past EURGBP price movements for July.
Trading Plan

I will wait for further developments on news and in a breakout of the expected low for the month. After that, we will probably see a pullback that will market our stop-loss zone. When price moves down again and makes a new low that’s my entry point.

GASOLINE BLENDSTOCK (RBOB) - NEW YORK MERCANTILE EXCHANGE

The timing of commercials players trading Gasoline RBOB can be described as superb, with just one wrong signal since 2007. The COT Index possible bottom signal triggered this week, but before we jump in the trade there are some considerations of the actual scenario that need to be taken into account during our decision to take or not the trade.

I just read two articles one from the eternal bear ZeroHedge and another one from WSJ, and while 99.99% of traders and analysts would believe this is super bearish Oil. Such interpretation in the vacuum can lead to inaccurate conclusions. OPEC made a huge move with a record production cut to offset the demand destruction, and this can happen again. The ease in oil cuts is because they are anticipating demand recovery. This is the point where the confusion is made. There is a HUGE difference between demand and consumption. The former refers to the amount of a good that will be used at any given price level, and with supply determines the price, while the latter is the amount of a good used and its determined by the price.

An increase in demand means that more will be consumed at any given price level. Factors that might affect demand include disposable income, consumer tastes, and the price of substitute goods but, by definition not price. (Schwager & Etzkorn, 2017)

So the increase in production does not mean more of the product will flood the markets and pressure price down. The expectation is more consumption is ahead of us.

Another mistake that I see when taking this event of the increase in the output in production as bearish is the lack of perspective. What we saw months ago as a RECORD production cut, this increase is a drop in a bucket and has all elements to get unnoticed by the markets, in fact, it can have the opposite effect because it’s adding positive expectations of world economies recovery.

I am holding a BULLISH view on Gasoline RBOB.

Assets with BIG correlation with GASOLINE

  • Apache Corp (NASDAQ:APA)
  • Platinum  (NYMEX:PL)
  • Avnet, Inc. (NASDAQ:AVT)
  • Precision Drilling Corp – NYSE: PDS

 

COT Index timing

That’s it my friends! I hope this can add value to you in some way. If you have any kind of doubts or questions please comment here, I am looking forward to replying to you.

“Hey Leo wait, I want to see your analysis for more pairs”

Very well my friend, join me in my chatroom.

Have a great weekend you all!

My best regards,

Leo Hermoso

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