At 9:30 pm Eastern Time tonight, the Reserve Bank of Australia (RBA) will be publishing their latest round of monetary policy meeting minutes. While there is a chance that their intentions could come across as more hawkish than expected, they currently have little reason to be. Despite relatively low unemployment at 3.5%, steady GDP growth, and annual inflation having increased by a full percentage point to 6.1%, the Australian economy has not overheated in a manner comparable to that of other countries.
Because their inflation threat is not nearly as dire as that faced by the US, the UK, and the EU, the RBA’s 50 bp rate hikes understandably pale in comparison to the Fed and the European Central Bank’s 75 bp hikes, or the Bank of Canada’s willingness to utilize a full 100 bp hike. Because of this disparity in economic circumstances, there is a good chance that the RBA’s meeting minutes will favor AUD bears tonight as a fundamental catalyst. For those who are interested in watching this unfold or perhaps taking a position, here are 2 paths for Aussie bears, along with their respective EdgeFinder ratings and categories.
1) AUD/USD (Receives a -4, or ‘Sell’ Signal)
With big monetary policy decisions and economic projections coming on Wednesday from a hawkish Federal Reserve, there is a chance that significant bearish momentum could be coming. Institutional traders clearly have far more confidence in USD over AUD, as per COT data.
2) AUD/CHF (Receives a -4, or ‘Sell’ Signal)
The Swiss National Bank is expected to implement a 75 bp rate hike on Thursday, officially leaving negative interest rates behind. This marks a hawkish pivot that continues to set apart the Swiss Franc as a safe haven currency.
Bonus: AUD/CAD (Receives a -2, or ‘Neutral’ Signal)
Though perhaps less clear than with the two aforementioned pairs, the Bank of Canada’s approach to contending with inflation contrasts remarkably with the RBA’s, despite both CAD and AUD being commodity currencies. Also, Canada has a monthly round of CPI data due on Tuesday.
As the trading week comes to a close, and forex traders are given another weekend of respite to mentally rest and/or backtest, it is worth considering where to pick back up on Monday. While there are many criteria to consider when selecting pairs to watch closely, in this article we will list several such pairs based on scheduled economic data releases and compelling EdgeFinder analysis. Based on these two categories, here are 4 pairs to watch next week.
1) GBP/CAD (Receives a -7, or ‘Strong Sell’ Signal)
On Tuesday, September 20th, Statistics Canada will be releasing a variety of month-over-month and year over year CPI data for August. On Thursday, September 22nd, the Bank of England (BoE) is forecast to hike the Official Bank Rate by 50 basis points, issuing a corresponding monetary policy summary as well. The Bank of Canada has been far more hawkish as of late than the BoE, so unless there are any bullish surprises, this pair seems likely to continue its bearish trend.
2) GBP/CHF (Receives a -7, or ‘Strong Sell’ Signal)
Along with the aforementioned BoE upcoming monetary policy decision, the Swiss National Bank (SNB) will also be deciding on a new policy rate on Thursday, September 22nd. The SNB is expected to implement a rate hike of 75 basis points, doing away with the precedent of negative interest rates. These expectations have seen this pair fall to historically significant lows, as can be glimpsed on the 1-week timeframe above.
3) GBP/USD (Receives a -6, or ‘Strong Sell’ Signal)
This pair presents another opportunity to sell GBP, since the Federal Reserve will be adjusting the Federal Funds Rate on Wednesday September 21st, as well as issuing accompanying economic projections and a related statement. Fed Chair Jerome Powell currently shows no signs of relenting from hawkishness as a 75 basis point rate hike is forecast. With support being tested, we will see whether the BoE or the Fed could present a catalyst for a breakout to the downside.
4) USD/JPY (Receives a 4, or ‘Buy’ Signal)
Along with the upcoming Federal Reserve decision, the Bank of Japan (BoJ) will also make a monetary policy decision this week. If the BoJ continues to keep their Policy Rate below-zero, further abstaining from rate hikes as currently forecast, this could usher in even more bullish momentum for this pair. Depending on how the Fed’s move meets or contrasts with market expectations, USD/JPY could yet again touch, or break out above, trendline resistance.
(More) Bad News for the United Kingdom
This morning, at 2 am Eastern Time, the UK’s Office for National Statistics reported that month-over-month Gross Domestic Product (GDP), a key measure of economic output, had failed to meet forecasts. While markets and analysts had expected 0.3% or 0.4% growth, the reality was a disappointing 0.2%. Though not a contraction, it is yet another in a long list of unfortunate national events ranging from double-digit annual inflation to the death of Queen Elizabeth II.
With newly elected Prime Minister Liz Truss taking the reigns at a time of great economic suffering, and a still-wary Bank of England unable to halt supply-side woes, there is little certainty to be found for the Pound Sterling. With fundamentals, institutional sentiment, and technical analysis pointing towards continued GBP bearish momentum, let’s explore which GBP pairs have the best selling potential.
Top Three Pairs to Sell
According to the EdgeFinder, A1 Trading’s market scanner software, the three most promising pairs to sell are all GBP pairs. All three are experiencing months-long downtrends, with recent bullish price action retesting key levels in the form of resistance. Here they are, along with their respective EdgeFinder signals:
1) GBP/USD (Earns a Score of -7, or ‘Strong Sell’)
2) GBP/CHF (Earns a Score of -7, or ‘Strong Sell’)
3) GBP/CAD (Earns a Score of -7, or ‘Strong Sell’)
Forex traders had a fair bit of news to chew on this morning. All eyes were on the European Central Bank as they implemented an anticipated 75 basis point rate hike followed by a press conference, after which the world was treated to yet more commentary from Fed Chair Powell. Perhaps sliding under the radar was positive labor market news for CHF, with Switzerland’s unemployment rate beating expectations by falling to 2.1%. This joins a long list of reasons to consider going long on the Swiss Franc, as CHF might be underrated.
The Swiss Economy’s Strength
Switzerland boasts many economic factors weighing in its favor, including its hot labor market, CHF’s safe haven reputation, and GDP growth in spite of a recession-prone global economy. In many ways it is comparable to Japan’s economy, as both are high performing, export-heavy economies that are historically comfortable with negative interest rates due to low inflation relative to other countries.
However, one crucial difference between the two in terms of fundamentals is that the Swiss National Bank has proven willing to hike interest rates recently, whereas the Bank of Japan has thus far put off such a move. With Switzerland’s annual inflation still creeping up, currently hovering at 3.5% (a thirty-year high), more tightening could potentially be on the menu.
Best CHF Pairs to Trade
According to the EdgeFinder, A1 Trading’s market scanner tool, the following three pairs may be worth selling for CHF bulls. Here are the pairs, along with their respective EdgeFinder ratings:
1) GBP/CHF (Earns a -6, or ‘Strong Sell’ Rating)
2) NZD/CHF (Earns a -6, or ‘Strong Sell’ Rating)
3) AUD/CHF (Earns a -5, or ‘Sell’ Rating)
At 2 am Eastern Time today, the United Kingdom’s Office for National Statistics reported that annual inflation has officially crossed into the double digits for the first time since 1982. In July, year-over-year CPI in the UK beat expectations by rising 10.1%, while year-over-year Core CPI (which excludes volatile food and energy prices) similarly beat market forecasts by increasing 6.2%. While high inflation of this magnitude is typically a bullish indication for a currency, implying rampant growth which must be slowed through higher interest rates, there is reason to believe that is not the case here. This is primarily because a) the UK’s economy is contracting, and b) the Bank of England has thus far been too timid to be effectively hawkish. With this in mind, let’s discuss the EdgeFinder’s top 4 pairs to sell today, which happen to all be GBP pairs.
This pair makes the top of the bearish list, earning a -8 or ‘strong sell’ signal from the EdgeFinder. This is because the US economy’s fundamentals are better than the UK’s (except for severity in GDP contraction), trader sentiment heavily favors USD, and both trend reading and seasonality (historical performance this month) indicate bearishness.
This pair also earns a ‘strong sell’ signal, or -6. Most variables favor CHF due to the Swiss economy’s resilient performance in contrast to that of the UK. COT data and interest rate divergence are the only categories that don’t support this signal because institutional traders have similar sentiment regarding these currencies, and the Swiss National Bank has not had to confront high inflation.
Earning yet another -6 or ‘strong sell’ signal, all categories but two favor CAD due to Canada’s economic stability and hawkish central bank. Only seasonality favors GBP, along with the UK’s superior unemployment rate (currently 3.8% to Canada’s 4.9%), though Canada’s has been declining.
This pair earns a milder, but still significant, ‘sell’ signal at -5. All listed fundamentals lean in AUD’s favor, while both institutional and retail sentiment remain neutral, with only seasonality supporting GBP.
Next Tuesday, the RBNZ will announce their new official bank rate which is expected to be 3%, a 0.50% rise from July. This hike will make it the highest yielding major currency on the market. Here is why you should consider buying the kiwi before Tuesday's decision as well as some strong NZD long setups.
The Regional Bank of New Zealand has been very adamant about tackling inflammatory issues in their economy. So much so, that analysts have stated that rates will not only reach a certain level but stay there for an extended period of time.
It also appears that New Zealand's central bank is planning to stay the course with consistent 50 basis point runs in the future. GDP is still in decline, so the economy is experiencing contraction, but that does not seem to deter the RBNZ for now.
People do have more confidence in the bank's battle as surveys saw a decrease in inflation expectations from 3.29% to 3.07% in 2023.
Subduing inflation is a primary factor in the kiwi's strength. Commodity prices like gold, oil and agriculture have declined overall due to supply chain issues and geopolitical conflict. This has an affect on the economy, but it is secondary towards CPI.
Investors are now pricing in the kiwi's target as we come to an end of this trading week. Outlook is strong on this currency right now.
Kiwi-swiss jumped today on rate hike anticipation. Price formed a higher high on the 1D, but still needs to close above resistance to validate a breakout. Price has been on a relatively long downtrend since February of 2021. Because of this strong trend to the downside, it's hard to tell when sentiment will shift. But a break above resistance could take price higher towards 0.61700s.
NZDCAD is coming up to test a previous top after breaking above a falling trend line on the 1D timeframe. More resistance lies above around the 61.8% fib retracement level and another longer term falling trend line.
One of the hardest moves on the kiwi is EURNZD after price drops 0.79% already today. Price already broke under support and formed a lower low, but it still looks like there is room to run on the 1D timeframe. Strong downside momentum could take price all the way to test the lows around 1.56904.
Why Sell USD?
While many USD bulls (including myself) think that bullish momentum in the US Dollar Index has a ways to go before buying pressure is exhausted, there is a compelling argument that this is not the case. First, the United States economy officially met the criteria for a technical recession as of Thursday morning: two consecutive quarters of GDP contraction, which is bearish for USD in theory.
Second, Fed Chair Jerome Powell gave ambiguous comments at the FOMC press conference this past Wednesday, which many analysts and traders interpreted as subtly dovish. If true, this would be monumentally bearish for USD, considering US inflation remains at 40-year highs. For those interested in shorting the US Dollar, here are three major pairs that the EdgeFinder, an A1 Trading tool for supplemental analysis, signals as opportunities for selling USD.
1) Sell USD/CHF
With a rating of -6, earning a ‘strong sell’ signal, fundamentals currently favor CHF for the most part, between Switzerland’s 2% unemployment rate and growing economy. The only strike against it is currently COT data, with a higher percentage of institutional traders buying USD rather than CHF.
2) Sell USD/CAD
With a rating of -4, earning a ‘sell’ signal, fundamentals are somewhat mixed for the pair, and are especially unique considering that the US is one of Canada’s primary trading partners. However, retail sentiment, seasonality, and trend reading currently weigh in CAD’s favor.
3) Buy NZD/USD
With a rating of 4, earning a ‘buy’ signal, fundamentals currently favor NZD in light of New Zealand’s 3.2% unemployment rate and smaller economic contraction, as well as their exports. While institutional and retail sentiment don’t favor NZD, seasonality and trend reading do.
How To Monitor USD
For those who are interested in keeping tabs on USD fundamentals and sentiment before trading major pairs, investing in the EdgeFinder will help you keep up with the latest economic data, COT data, and more. Use this link if you would like to purchase the EdgeFinder, or perhaps try it out for free.
The Bank of Japan is to report an important economic outlook meeting this Wednesday followed by a revised monetary policy statement. The dollar-yen's price has been nested in the 141s for several trading sessions, but the pair is likely set to make a big move soon. Here are some reasons why you should consider buying USD/JPY before then.
The BOJ continues to keep their dovish stance on the economy. Ultra loose monetary policy on the yen will not quell the 2.5% inflation that Japan is currently experiencing. Although the United States is suffering much more, investors still cling to the main safe haven currency regardless.
Smart Money is actually moving away from other risk-off currencies and shifting more towards the USD. This is likely due to the anticipation of a stagnant economy in Japan while there are 'better' options in the risk-off market.
Japan and Switzerland are working towards an eventual rise, but interest rates are still negative. Usually, this is good for lending to other countries as they earn interest by keeping their money in a Swedish or Japanese bank. This year, lending growth has tremendously increased to a high YTD. However, GDP growth continues to fall, and it seems like investors are pricing in another dovish statement Wednesday.
The chart above is USOil correlated to the JXY, or the yen index. Since early 2021, the yen has been inversely correlated with the price of oil. This means that as oil rises, yen falls. Because of the increasing demand of oil in recent months, the yen has suffered as a result. So, it could be safe to assume that if USOil starts to rise more, the yen will likely go lower.
Oil is a major resource for Japan, so any kind of decline in this commodity will cause the economy to suffer.
Up until recently, the yen has been inversely correlated with gold. However, this has shifted to the opposite now; recent weakness in gold is pushing the yen lower.
The USD comes down overall today which could end up being an opportunity for investors who are bullish. Price has come down near support around 137.744 with another key level beneath that around 136.985. A price target for the pair looks to be around 139.400 should price bounce from these levels.
The 4H timeframe gives us an idea of where price might look to go this week with a double top resistance at 141.900 and support around 140.350. Below that is a rising trend line that has served as longer term support. A break in resistance could take the pair higher towards the 143.700s.
AUD and NZD is stronger today as the RBNZ rate decision is to come out later today at 10:00 p.m. EST. Let's see a forecast on the kiwi and how it fares compared to other currencies. Here are some reasons to be buy kiwi before then.
The kiwi hit a two-year low as the currency struggles with surging inflation and slower economic growth. This seems to be a common theme around the world as other major economies are going through the same contraction. However, we can look to interest rates.
Some countries are doing the same thing, but are not aggressive enough compared to economists. New Zealand's central bank is already the most combative against inflation with an interest rate of 2% already. Most major countries are struggling to bring it up any higher because of the economy.
However, it seems that the RBNZ is taking up a similar philosophy to the Federal Reserve which is to fight inflation at all costs. This means that the kiwi's interest rate is going to continue to rise regardless of what happens to the economy in the short term. In other words, if unemployment rises, so be it.
RBNZ plans to hike up their interest by another 50 basis points with rumored talks of doing another one in August. Rates are at 2% now, expecting to be 2.50% later today, and 3% in August.
NZDCHF climbs on the day in anticipation of a 50 bp hike. Price has significant resistance around 0.61683 and a falling trend line right above it that could likely get tested soon. Traders might try to price the kiwi at a higher level, so that level of resistance could be a good price target.
This pair looks promising to the upside as price touches a rising trend line on the 1D timeframe. This level is also paired with a zone of support where a double bottom has formed. Traders might be looking to ride this trade to the top of the wedge of even a potential breakout to further highs.
EURNZD comes down to a previous bottom on the 1D timeframe. Price could see a bounce from this support, however, a break under this level would result in a pretty considerable drop in value. Price could go as far as the 1.56000s on an extreme move.
After last week's events, certain pairs look to be reacting heavily as volatility increases. Current behavior is starting to shape long and short ideas across the charts. Here are some of the best forex setups we are looking at right now followed by our analyses behind them.
Swiss-Yen came down to support on a rising trend line on the 1D timeframe. Price has been falling until today when the Yen was stronger last week. The pair also has support around the 137.797 level where there is a previous top should it fall more. Heavy resistance lies up at the previous highs of 143.670s. If CHFJPY can bounce here and close above Friday's price, we might be able to see a shift back to the upside and a test on this level.
The image above shows GDP growth for the two currencies on the most recent quarter reported. Although both saw slight growth in GDP, Switzerland's economy is doing better overall because the economy is not shrinking despite the rise in interest rates.
Japan, on the other hand, is still seeing its economy shrink without even any aggressive monetary policy. The BOJ wants rates to hit 0% from -0.10%, but there is still no clear timeframe on when that move will occur. So, CHF still has a slight edge over the Yen even though they are two safe havens.
NZDCAD has come down to a support level on the 4H timeframe and is testing a previous bottom at 0.79480. A break and close under could mean significant more downside, but we would need to see that confirmation first. If price bounces, a double bottom will form and cause that level to become a stronger level of support. Also, a bounce could take the pair up to 0.80543 where there is some heavy resistance in the way. So, there are two considerable short setups around these two prices. One is betting on the break lower and the other is shorting the bounce.
Canada's economy has a strong advantage over New Zealand's. Both economies depend on commodity performance, but Canada seems to be going through expansion more so than NZ. Canada saw declining unemployment for the past year as it is now at the lowest level on record since 1976.
It's also true that NZ has falling unemployment, however, output is still stronger on the loonie's side. Canada's GDP growth is still higher than the kiwi's while inflation is not rising as harshly in Canada than in NZ.
Still, retail is vastly long this pair. Institutions want less and less to do with the kiwi, however. And over 60% of big money is short this pair.
GU touched a lower low in Friday's trading session and is now on the rise today. This could mean that price is going to try to test resistance around the falling trend line on the 4H timeframe. Because of price action and trend movements, it looks like the down trend will continue. So, a bounce to the upside could be a short setup to watch this week.
England's economic outlook has become worse after the recent leave of former Prime Minister Boris Johnson. The US and UK alike are suffering from slowing economic growth on a broad scale, but investors don't have faith that BOE will be able to curb inflation. The US has a better chance of doing so because of their central bank's policy to control it at all costs.
The UK's Consumer Price Index has reached record highs and is continuing to fly higher with each passing month. There is no sign of England getting anywhere near that 2% inflation target. Although the US has a ways to go as well, at least they're prioritizing this more even at the expense of slowing economic growth.