AUDUSD Trade Idea based on Dec-18-2018 COT Reports

[Zack Zarr 5]

Quote

NEW FORMAT

Weekly trade setups and analysis will be posted in this new format. As always, your feedback is highly appreciated.

TRADE IDEA

AUDUSD LONG

• Buying Range* : 0.69 - 0.704
• Stop loss Area: 10-20 pips below 0.68
• Target Profit:

1. TP1: 0.72
2. TP2: 0.74
3. TP3: 0.76

CHART

Below is the current chart with the daily chart of AUDUSD. The prediction of price movement, buying range* and SL range are shown on the chart. My first buy is already in.

 

ANALYSIS

The two charts below show:

• Top: Positioning of the large specs vs small specs based on the COT-Legacy reports of Dec 18, 2018. 
• bottom: Positioning of the Asset Managers vs. Leveraged Money in the TFF reports of Dec 18, 2018.

Note: the Dec 26, 2018 reports are missing due to government shutdown in case you were wondering. 

Legacy Reports

 

Legacy report: The major action of the large specs has been profit taking on their shorts foe the past 2 months. Over this period, large specs used every drop in the price to take profit on their short position resulting in 50K reduction in shorts from 99K shorts in Oct 9 to 53K shorts on Dec 18th (See below).

I also made a pitchfork visible on this chart which I think could become significant if the price starts heading up.

 

Interestingly, the large speculators have not started adding to their longs. The pullback from the recent largest short position is now at 53% which is the lowest over the past year. The only difference is that a year ago from now in early December, long positions where still as high as 90K longs vs. the current 18K amount. Yes, not much room to decrease in my opinion. 

 

TFF Reports

 

TFF Report: Similar to the legacy reports, both sections of the TFF report have been decreasing their shorts positions over the past 2 months. Asset managers took 25K shorts off their books while leveraged money decreased their shorts by 35K. The Lev Money is the bigger of the two, so their behavior resembles the large specs in the legacy report. As opposed to the Lev Money, Asset Managers have also started adding to their longs for almost 7 months now. Starting from only a 3K long positions in May 2018, they are now at 14K which is a over 4-fold increase. Of course, the sizing of their position is relatively smaller, i.e. insignificant compared to those of Lev Money. But, still something to pay attention to.

There is one factor which is oddly against the bullish case herein the data. And that is the sudden drop in short positions of the Sell Side (Dealers) showing up as a jump in the overall long exposure of Dealers. It could be simply expiration of some contracts. But the lack of data from Dec 26th makes it hard to draw any conclusion. Something to have in mind for the coming weekly data.

Summary: The overall activity and positioning of the large traders in the COT reports suggest the preparation for some up movement in AUD. The already low long exposure and continuous drop in the shorts could be the beginning of this move. However, we could potentially wait form another week or two to see the actual long build up to make a more certain decision. No prediction is for certain! Only a game of probabilities.

 

*Note: buying in range means spreading buy orders into a full position (depending on your account size).

 

For more information on this type of analysis check out the previous posts in the education section of the forum here, here, and there.

 Create a FREE account to get access to all previous weekly analysis and educational materials using the registration form found in this page.

If you want to discuss further and clarify things, please send me a message to [email protected]

 

Zack

Your feedback is highly appreciated as always, and helps us make these posts more effective.

[Zack Zarr 5]

UPDATE: 

Out of all longs I had opened on unexpected volatility during the least liquid time of the day. Apple earning modification is being cited as the catalyst. 

Anyhow, will revisit after we get more CFTC data which has been missing for the past 2 weeks.

Zack

[Zack Zarr 5]

UPDATE:

Had to buy back again, as yesterday's flash crash was just a "glitch". The price came right back in the buy zone so I bought again. Same SL.

Would be very helpful to have the past few weeks of CFTC COT data.

Zack

[Zack Zarr 5]

For the next trade I am looking at Gold. I think there needs to be a drop so that the big players could add to their longs. Will post that later today or tomorrow.

Zack

[Erwann 13]

Hello, 

All the best to you for 2019.

Thanks for the new format, i will follow it

[Zack Zarr 5]

UPDATE:

Still looking good on re-buying from that zone.

I will wait form some pullback to buy more at around 0.71-0.715.

Note: buying from this area right now is purely based on price action (imagine the sellers who sold on that drop are all out for loss). Buy decision is NOT based on any COT data as I am patiently waiting for this government shut down to end. The big players are running around with their orders with no one watching their orders!

[Zack Zarr 5]

UPDATE:

With the government still shut down, and no real numbers based on big banks decision, we cannot see what really happened during the drop and pull back early this year. 

 

CFTC reports are not being updated which is the main reason why I am holding off on making any new trade decision. 

Price Action:

From pure price action point of view, the AUD has a change of a free fall to well below 0.68 and even filling a weekly gap down to 0.66 area. Why? because I can see all SL orders have been taken out by that giant drop early January. But what happened after that drop and how giant of a buy order was placed is a question which we don;t have the answer to. So please be aware the unknowns at the moment.

 

Zack

[Zack Zarr 5]

UPDATE:

The longs I started after the sharp drop are still open, we saw a strong move up after the FOMC data today. The price went a bit furhter down the buy zone I suggested in the previous zone (by 20 pips) but that is expected and should fall inside your SL range.

 

It is wise to move SL into profit, take some profit (TP 1 is already hit).

I will take some time to see all COT data starting this Friday, so until then, I would be still cautious on holding the longs below 0.70 which is somewhere around my average entry point.

Will update as we see more data in the coming days. and also will post new trades.

 

Good luck,

Zack

[Zack Zarr 5]

UPDATE (Feb 26, 2019 | 10PM EST)

AUD has not shown much movement since last time I showed the COT data. Until Feb 12 (the latest COT report release), the large speculators have been moving long and short position back and forth without any consistent direction. 

They started adding some longs before the year end, but the giant drop after the new year caused some of those longs to be closed while some shorts were added. But eventually those shorts were also closed. 

The price reacted to the pullback in a manner which I expected but hasn't moved much since then.

This inactivity is mostly due to the continuous weakness in AUD data and China trade concerns. For the time being, I still have part of my longs open with SL (stop loss) close to BE (break even) near 0.7

 

Will update this as we  see the Feb 19 and 26 COT data.

 

Zack