Today and tomorrow are primed to be significant for those trading the Japanese Yen, as well as Japanese bonds. The Bank of Japan (BoJ) is tentatively scheduled to release a Monetary Policy Statement at some point today along with any interest rate adjustments, with a press conference to follow tomorrow. Buying pressure for JPY has been gaining steam over the past few months as traders bet on the BoJ finally pivoting away from extreme dovishness as annual inflation in Japan hits a historic 3.7%. However, while the BoJ seems likely to change course at some point, there have been few explicit signals to suggest that a newfound hawkishness could be just around the corner; for context, Japan’s economy has wrestled with a chronic deflation problem for decades. While the BoJ’s Governor, Haruhiko Kuroda, has a planned retirement in April of 2023, what sort of tone his successor will set still remains a little way off. As retail traders contemplate how to trade JPY this week, it may be wise to focus more on fundamentals over speculation.

Three Pairs to Watch

The EdgeFinder is currently quite bearish on JPY ahead of the upcoming monetary policy news. For those interested in looking for potential trade setups for selling the Yen, the following pairs are rated favorably for JPY bears. They are listed below with their respective ratings, signals/biases, and corresponding charts.

1) CHF/JPY - Receives a ‘7’ Rating, or a ‘Strong Buy’ Signal

2) EUR/JPY - Receives a ‘6’ Rating, or a ‘Strong Buy’ Signal

3) NZD/JPY - Receives a ‘5’ Rating, or a ‘Buy’ Signal

As another dense news week draws to a close and financial markets continue to react to the latest flurry of interest rate hikes around the world, it can be helpful for traders to recenter on key biases. Before the weekend fully arrives, let’s check in with the EdgeFinder, A1 Trading’s market scanning software, to take note of the various ‘strong’ signals that have been generated in preparation for next week. The following list is composed of the 5 strongest pairs to trade according to EdgeFinder analysis: they are listed with their respective ratings, signals/biases, and corresponding charts. Additional fundamental and technical commentary will be provided accordingly.

1) USD/CAD - Earns an ‘8’ Rating, or a ‘Strong Buy’ Signal

2) NZD/CAD - Earns a ‘6’ Rating, or a ‘Strong Buy’ Signal

3) EUR/JPY - Earns a ‘6’ Rating, or a ‘Strong Buy’ Signal

4) AUD/NZD - Earns a ‘-9’ Rating, or a ‘Strong Sell’ Signal

5) GBP/NZD - Earns a ‘-9’ Rating, or a ‘Strong Sell’ Signal

As we await significant economic news releases over the coming days (such as Australia’s quarter-over-quarter GDP growth tonight at 7:30 pm ET, an interest rate hike and corresponding statement from the Bank of Canada on Wednesday at 10 am ET, and the latest Producer Price Index numbers for the US on Friday at 8:30 am ET), it is worthwhile to consider which pairs the A1 Edgefinder already suggests monitoring. With this in mind, here are the EdgeFinder’s three potential best pairs to sell this week, listed below with their respective ratings, signals/biases, and corresponding charts. Due to the New Zealand Dollar’s holistic strength as of late, they are currently all NZD pairs. Additional comments on fundamentals and technical analysis will also be provided.

1) GBP/NZD - Earns a ‘-9’ Rating, or a ‘Strong Sell’ Signal

2) AUD/NZD - Earns a ‘-9’ Rating, or a ‘Strong Sell’ Signal

3) EUR/NZD - Earns a ‘-6’ Rating, or a ‘Strong Sell’ Signal

This morning’s economic news pertaining to the United States has been rather complicated. Because of this, we would like to issue a word of caution: bizarre US labor data like this can have odd effects on price action for major pairs. On one hand, Non-Farm Employment Change (NFP, for Non-Farm Payrolls; a key gauge of private sector labor market activity) estimates for November came in far from strong. Released at 8:15 am ET by Automatic Data Processing, Inc., a meager 127,000 jobs were projected to have been added to the US economy over the latest month, a far cry from the 196,000 that had been forecast. This implies a cooling labor market, which is bearish for USD.

On the other hand, however, the latest findings in the Bureau of Labor Statistics JOLTS jobs report, published this morning at 10 am ET, has seemingly contradictory implications: an impressive 10.33 million job openings remain in the US, still almost double the number of unemployed individuals looking for work. Coupled with better-than-expected quarter-over-quarter real GDP growth, with the latest numbers clocking in at a 2.9% expansion this morning, and a smaller decline in homes sales than anticipated, this news paints a different picture of the US labor market and economy, one that is still red hot. This is quite bullish news for USD.

What to Make of This?

While it does appear that more reports are signaling USD bullishness than bearishness, we can also wait for further confirmation about US economic strength over the next few days. For example, tomorrow morning the latest changes in the US Core PCE Price Index month-over-month will be made public; this is a key fundamental indicator for those trading USD, as it is the Fed’s preferred measure of inflation. Likewise, Friday morning will be a pivotal day in the financial markets, since the official new NFP numbers, wage growth data month-over-month, and new US unemployment rate will be published too, all at 8:30 am ET. Between all these crucial updates on fundamentals, traders will have much to chew on, far more than just today’s confusing data.

3 Potential Pairs to Buy

According to the EdgeFinder, A1 Trading’s market scanner, EUR/USD and USD/CAD remain the optimal pairs to monitor right now for opportunities to go long on USD. Because we just explored their respective charts in Monday’s article, let’s take this time to examine the EdgeFinder’s highest rated pairs to buy, which all happen to be NZD pairs. A strong currency in its own right, the New Zealand Dollar is well worth focusing on as we await further USD developments. Without further ado, here are the three pairs that rank highest on the EdgeFinder’s score summary chart, along with their respective ratings, biases, and corresponding charts.

1) NZD/CAD – Receives a ‘6’ Rating, or a ‘Strong Buy’ Signal

2) NZD/USD – Receives a ‘5’ Rating, or a ‘Buy’ Signal

3) NZD/JPY – Receives a ‘5’ Rating, or a ‘Buy’ Signal

Near official as of last week, the financial world has had some stunning news to grapple with. The Federal Open Market Committee (FOMC), the policy-making body within America's Federal Reserve, revealed in their latest set of meeting minutes that they are leaning towards slowing the pace of interest rate hikes. A huge step away from recent hawkishness, one key motivating factor for this blossoming consensus is the FOMC's desire for caution, and their intent to monitor the US economy's response to this year's sequence of rate hikes. This desire for hesitancy is warranted since the effects of rate hikes typically lag, with higher interest rates for businesses and consumers often taking a while to slow demand, reducing inflation and economic activity over time. The US Dollar Index (DXY) has continued sinking lower on these shocking new USD fundamentals, testing support at the 106 level as depicted on TradingView's chart above.

However, these new developments are complicated by other crucial variables. First, the FOMC has also made it clear that they now expect the federal funds rate to peak at a level higher than their earlier expectations had reflected. In other words, in spite of near-future rate hikes likely shrinking in size, they will also likely be more frequent than previously intended, with US interest rates currently anticipated to climb higher than the FOMC had planned several months ago. This factor is quite bullish for USD at face value, though how financial markets will digest it over the coming months is difficult to say.

Second, the DXY faces peril in the form of a fresh slate of US economic data this week, including: the Conference Board’s Consumer Confidence report at 10 am ET on Tuesday tomorrow; Non-Farm Payroll (NFP) estimates, JOLTS Job Openings, and a speech from Chair Powell on Wednesday; month-over-month Core PCE Price Index numbers on Thursday at 8:30 am ET; and wage growth, NFP changes, and the new US unemployment rate on Friday at 8:30 am ET. As this flurry of new data becomes available to traders around the world, many major pair trade setups will likely emerge for both USD bulls and bears.

Three Pairs to Watch

For those who remain bullish on USD, two of the following currency pairs are viewed favorably by the EdgeFinder, and the other, USD/JPY, earns a spot on this list nonetheless due to its past potential. They are itemized below with their respective ratings, signals/biases, and corresponding charts. They could potentially yield some great opportunities for going long on USD this week, depending on how the markets react to the contents of these new batches of economic data.

1) USD/CAD - Receives a ‘4’ Rating, or a ‘Buy’ Signal

2) EUR/USD - Receives a ‘-4’ Rating, or a ‘Sell’ Signal

3) USD/JPY - Receives a ‘1’ Rating, or a ‘Neutral’ Signal (Personal Long Bias)

This morning at 8:30 am Eastern Time, the Bureau of Labor Statistics revealed the latest figures for a key measure of inflation in the United States. The Producer Price Index (PPI), which tracks changes in the prices of goods and services sold by producers, was expected to increase by 0.4% month-over-month in October; instead, it only rose by a mild 0.2%. Likewise, Core PPI (which excludes volatile food and energy prices), was forecast to increase by 0.3% month-over-month, but remained static, changing exactly 0% instead. These surprising PPI numbers today offer yet another instance of American inflation dropping following the recent low CPI report, building a bearish case for USD and a bullish one for stock market indices as the need for a hawkish Fed ostensibly lessens. However, I am personally skeptical of this development as many underlying economic fundamentals have not changed, as we will discuss below.

Markets to Watch

My bias remains bullish on USD, and bearish on the US stock market, for three primary reasons: A) None of the crises the world is contending with have evaporated: an energy crisis still looms with winter around the corner, and many markets are still hot with artificial demand following quantitative easing mid-pandemic. B) The Democratic Party in the US, which tends to be seen as a pro-stimulus party, recently outperformed expectations in last week’s midterm elections, which I predicted could create short-term rallies in the stock market (but longer-term bullishness for USD). C) One month’s worth of data on inflation is not enough to mark a trend; October’s low numbers could easily be outliers, perhaps due to tapping into oil reserves to alleviate cost-of-living increases.

For those who remain bullish on USD and anticipate the Fed further hiking interest rates at a historic pace to quell high inflation, the following markets will be key to watch. They are listed below with their respective EdgeFinder ratings, signals/biases (which diverge from mine), and corresponding charts.

1) EUR/USD (Receives a -2, or ‘Neutral’ Signal)

2) US30 (Receives a 4, or ‘Buy’ Signal)

3) USO (Receives a -5, or ‘Sell’ Signal)

This morning at 8:30 am Eastern Time, the United States Bureau of Labor Statistics revealed October’s Consumer Price Index (CPI; a proxy for inflation) numbers. Included in this report was month-over-month CPI, year-over-year CPI, and month-over-month Core CPI, which cuts out volatile food and energy prices. Rather than exceeding market expectations as USD bulls have become so accustomed to, last month’s inflation rather decelerated, and by large margins too. Month-over-month CPI was a meager 0.4%, a far cry from the 0.6% forecast, and month-over-month Core CPI only increased by 0.3% instead of 0.5%. The shocking US inflation data this morning is bearish for USD at face value, painting a picture of a US economy that is beginning to cool, implying less urgent need for Fed aggression while providing encouragement for stock markets.

Three Pairs to Trade

Despite this news, a bullish USD bias can still be meaningfully tied to fundamentals, because Fed Chair Powell made it clear that the Federal Reserve will not reduce rate hike goals based on one or two occurrences of lower-than-forecast inflation data. Thus, the bearish USD price action that arises from this news grants USD bulls potential opportunities for trade setups. With this in mind, here is a selection of pairs that the EdgeFinder, A1 Trading’s market scanner, still views favorably for USD bulls; they are listed below with their respective ratings, signals/biases, and corresponding charts.

1) USD/CAD (Earns a 6, or ‘Strong Buy’ Signal)

2) USD/CHF (Earns a 3, or ‘Buy’ Signal)

3) EUR/USD (Earns a -3, or ‘Sell’ Signal)

Tomorrow morning at 8:30 am Eastern Time, the Bureau of Labor Statistics (BLS) will be reporting the latest data for three major measures of US labor market activity. Average Hourly Earnings is forecast to increase by 0.3% month-over-month, Non-Farm Employment Change (NFP) is expected to see net 197,000 jobs added last month, and the new unemployment rate is anticipated to clock in at 3.6%, increasing by 0.1%. However, these market expectations are thrown into question by the Automatic Data Processing NFP estimates released yesterday: 178,000 jobs were forecast, whereas the final estimation was a whopping 239,000 Non-Farm Payrolls added last month. If this same hot labor upset plays out in the BLS’ data on NFP and more tomorrow, we could experience yet another bullish fundamental catalyst for USD, lending even more credibility to the Fed’s concerns that high inflation is far from dealt with.

Three Potential Pairs to Sell

For those interested in going long on USD, here are three pairs to watch for selling opportunities. They are reviewed favorably for USD bulls by the EdgeFinder, A1 Trading’s handy market scanner. They are listed below in order of favorability, along with their respective ratings, signals/biases, and corresponding charts.

1) XAU/USD (Gold) - Earns a -8, or ‘Strong Sell’ Rating

2) AUD/USD - Earns a -6, or ‘Strong Sell’ Rating

3) EUR/USD - Earns a -6, or ‘Strong Sell’ Rating

From the hours of 3:15 to 9:45 am Eastern Time on Monday morning, there may be several fundamental catalysts that cause great volatility across the forex market. This prompts us to issue a warning: PMI on Monday. France and Germany, the United Kingdom, and the United States will all be releasing the latest monthly results of their respective Flash Manufacturing Purchasing Managers Index (PMI) and Flash Services PMI, within just hours of each other. These indices, which are composed by surveying purchasing managers across the manufacturing and services industries, are key indicators of economic expansion and contraction, which offers traders a sneak peek at each country’s evolving GDP.

If a set of PMI numbers come in higher than currently forecasted, this will theoretically be bullish for the host country’s currency, whereas numbers that fail to meet forecasts would likewise be bearish. With EUR, GBP, and USD already contending with potential market turmoil from war-related energy crises, upcoming US midterm elections, and UK Prime Minister Truss’ historic resignation yesterday after a mere six weeks in office, Monday’s news may only add more fuel to the fire.

Three Pairs to Watch

While the PMI data could swing in all sorts of directions, holistic economic conditions such as energy access and Fed hawkishness seem to further weigh in USD’s favor. However, given the pullback on recent highs from USD, A1’s EdgeFinder is perhaps signaling more caution than enthusiasm here. Nonetheless, in the context of the potential PMI catalysts, the following three pairs are well worth watching for trade setups. They are listed below with their respective ratings, signals/biases, and their corresponding charts.

1) EUR/USD (Receives a -5, or ‘Sell’ Signal)

2) GBP/USD (Receives a -2, or ‘Neutral’ Signal)

3) EUR/GBP (Receives a -1, or ‘Neutral’ Signal)

This morning, at 8:30 am Eastern Time, the Federal Reserve Bank of Philadelphia released an unfortunate batch of news for the US economy. The Philadelphia Fed Business Outlook Survey, otherwise known as the Philly Fed Manufacturing Index, which surveys over 200 Philadelphia manufacturers on a monthly basis, indicated worsening business conditions this month. While a score of -5 was anticipated, and would have already been a pessimistic indication, the real number was a bleaker -8.7. Considering that American manufacturing is a crucial component of US exports, these disappointing conditions ostensibly highlight the toll that a strong US Dollar is taking on trade, which carries negative implications for US GDP growth, or the lack thereof. With USD falling on the Philly Fed News today, monetary tightening-induced recession fears continue to haunt financial markets.

End of the Road for USD?

While the USD bullish run cannot last forever, a reversal currently seems unlikely anytime soon. High core inflation and hot labor markets are still incentivizing the Federal Reserve to continue their aggressive rate hike strategy, which they show little sign of stopping, regardless of UN criticism. Those bullish on USD may want to watch bearish movements like these for potential trade setups, which could yield potential discounted opportunities for going long on the Greenback.  

Three Potential Pairs to Trade

According to the A1 EdgeFinder’s market analysis, the following pairs rank favorably for those interested in going long on USD. They are listed below with their respective ratings, signals/biases, and corresponding charts.

1) USD/CHF (Earns a Score of 4, or a ‘Buy’ Signal)

2) EUR/USD (Earns a Score of -5, or a ‘Sell’ Signal)

3) AUD/USD (Earns a Score of -4, or ‘Sell’ Signal)