With the holiday season lingering on and a new year on the cusp of arrival, traders may glance at the calendar and notice there is not much economic news to anticipate on Friday to cap off a light week. In situations like these where there can be lulls in bullish and bearish momentum due to a lack of fundamental catalysts, it can be helpful to remember that abstaining from trading is often its own discipline. With this in mind, let’s consider three ways traders can be productive during bouts of time where financial markets may not yield many trade setups. After all, the art of not trading is hard to navigate, but is essential for remaining profitable.
This may seem obvious or cliché at face value; however, guaranteeing meaningful rest for yourself is of the utmost importance when it comes to excelling in any skill. Just as athletes and manual laborers need rest days so that their muscles can adequately repair, time off from purely mental activities like trading is crucial for avoiding burnout and preventing recklessness. Besides simply making an effort to spend time away from the trading environment, ensuring a certain quality of rest can be quite helpful as well. Whether that means indulging in some extra sleep, spending time with old friends, exercising at the gym, or making time for an often-neglected hobby, good rest takes many forms for everyone. Whatever that happens to be for you, fitting restfulness into your lifestyle truly is an aspect of healthy trading, not a departure from it.
Because trading is a game of risk management and probabilities, setting aside time for pouring over historical data can be of great benefit when it comes to exploring a strategy. Whether you are considering implementing a brand-new approach or polishing a formula you judge to be tried-and-true, subjecting any strategy to backtesting is always time well spent. For those interested in learning more about how to backtest, feel free to watch this video and much more from A1 Trading’s YouTube channel, and explore a selection of Metatrader Trading Software offered here.
It often appears to be the case that many retail traders fall into the trap of over-relying on technical analysis over fundamental analysis. While reading charts and utilizing technical indicators can be incredibly helpful, it is important to remember that currencies, equities, and commodities are real things with actual value, and that their worth is not reducible to patterns on a screen. Investing your time in conducting fundamental analysis, such as reading up on the economic performance of the host country of a currency you trade or keeping up with news about the geopolitical tensions influencing a commodity’s availability, can be illuminating. By making an effort to understand the nuances of a particular currency pair or other asset, you may find that your biases as a trader grow more nuanced as well. For those interested in using a market scanner that offers supplemental fundamental analysis, the EdgeFinder is fantastic.
As many readers are aware, the EdgeFinder, A1 Trading’s market scanner, can be incredibly helpful in the process of discerning which assets are worth watching for potential trade setups. Whether someone is planning on buying or selling currency pairs, commodities, indices, or more, EdgeFinder analysis is so holistic that its ratings and biases can be a go-to supplement for bulls and bears. However, one feature of the EdgeFinder’s that is rarely mentioned, yet quite meaningful, is its generation of ‘0’ ratings and ‘Neutral’ biases. Most days, there is a small handful of assets that earn these reviews; rather than being irrelevant, these ratings can be quite beneficial to keep in mind, as they alert traders to a high level of uncertainty. With that in mind, here are 3 pairs to avoid (for now), as they currently earn such ‘0’ ratings, warranting caution.
1) AUD/CAD - Earns a ‘0’ Rating, or a ‘Neutral’ Signal
2) NZD/USD - Earns a ‘0’ Rating, or a ‘Neutral’ Signal
3) GBP/CAD - Earns a ‘0’ Rating, or a ‘Neutral’ Signal
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
Fresh on the heels of today’s surprisingly low inflation data for the United States, all eyes will be on the big Fed decision ahead. Tomorrow afternoon at 2 pm ET, the Federal Open Market Committee (FOMC; the policy-making body within the Federal Reserve) will reveal their latest increase in the Federal Funds Rate, along with a corresponding statement and a new set of economic projections for the next two years (including interest rate forecasts). Following this, at 2:30 pm ET Fed Chair Jerome Powell will speak at the FOMC press conference, where he will answer questions regarding monetary policy strategy, economic outlook, and more. All these events are likely to cause a great deal of volatility across financial markets, especially as equities investors eagerly await a slower rate hike pace.
With a 50 basis point rate hike forecast for tomorrow, instead of another brutal 75 basis point hike like those that have been implemented consecutively the past several times, traders and analysts will be on the lookout for more signals regarding a further pivot away from hawkishness. They may feel further emboldened in this search in light of the latest CPI data released this morning, showcasing another month of slowing inflation, bolstering stock market optimism and reducing US Dollar bullishness. However, whether evidence for this narrative continues to build has yet to be seen: there is still the chance that the FOMC could further upwardly revise interest rate forecasts while slowing the pace, which would not be quite as bullish for stocks and bearish for USD as it may seem.
Three Indices to Watch
In yesterday’s article we discussed three pairs to monitor for those who are bullish on USD; they remain worth checking on for potential trade setups this week. Today, however, let’s examine three stock market indices worth watching for those who may be anticipating a fundamental catalyst related to potential Fed dovishness tomorrow. Though two receive neutral signals, the EdgeFinder currently offers positive ratings for all three listed below, as can be seen among their respective ratings, signals/biases, and corresponding charts.
1) US30 (Dow Jones) - Earns a ‘3’ Rating, or a ‘Buy’ Signal
2) SPX500 (S&P 500) - Earns a ‘2’ Rating, or a ‘Neutral’ Signal
3) NAS100 (Nasdaq-100) - Earns a ‘2’ Rating, or a ‘Neutral’ 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
While today is relatively uneventful in terms of major economic news around the world, this will not be the case for long. There is a chance that the forex market could witness a Kiwi Dollar spike tomorrow due to the Reserve Bank of New Zealand (RBNZ) announcing their latest interest rate hike at 8 pm ET. With market forecasts currently expecting the Official Cash Rate to increase by 75 basis points, hitting 4.25% (surpassing the United States’ Federal Funds Rate), all eyes will be on NZD to see if it retains its bullish momentum. With the RBNZ set to issue a Monetary Policy Statement in conjunction with their rate hike, and a press conference to follow an hour later at 9 pm ET, how the markets interpret the RBNZ’s commentary will help decide the fate of the New Zealand Dollar.
Three Pairs to Watch
The EdgeFinder, A1 Trading’s market scanner, currently holds NZD in high esteem: all the pairs with the strongest buy and sell signals are NZD pairs, with biases that corroborate Kiwi Dollar bullishness. Three of these pairs are listed below with their respective ratings, biases, and corresponding charts.
1) GBP/NZD - Receives a ‘-9’ Rating, or a ‘Strong Sell’ Signal
2) AUD/NZD - Receives a ‘-9’ Rating, or a ‘Strong Sell’ Signal
3) NZD/JPY - Receives a ‘5’ Rating, or a ‘Buy’ Signal
As many of you already know, the EdgeFinder, A1 Trading’s market scanner software, can be incredibly helpful for discerning which securities are especially worth watching for potential trade setups. Whether you are planning on buying or selling a currency pair, commodity, bond, or more, EdgeFinder analysis is so robust that its ratings and biases can be a go-to supplement for traders. However, one feature of the EdgeFinder’s that is little mentioned, yet quite meaningful, is its generation of ‘0’ ratings and ‘Neutral’ biases. Most days, there are a small handful of pairs or securities that earn these reviews; rather than being irrelevant, these ratings can be quite convenient to keep in mind, as they can alert traders to risks in terms of lack of signals. With that in mind, here are 4 pairs to be wary of next week, as they currently earn such ‘0’ ratings, indicating that an extra measure of caution could be helpful.
1) GBP/CAD - Earns a ‘0’ Rating, or a ‘Neutral’ Signal
2) USD/CHF - Earns a ‘0’ Rating, or a ‘Neutral’ Signal
3) XAU/USD (Gold) - Earns a ‘0’ Rating, or a ‘Neutral’ Signal
4) GBP/USD - Earns a ‘0’ Rating, or a ‘Neutral’ Signal
This morning at 2 am Eastern Time, the Office for National Statistics reported the latest monthly round of Consumer Price Index (CPI) and Core CPI increases within the United Kingdom’s economy. Annual CPI, which had been forecasted to hit 10.7%, instead jumped by an astonishing 11.1%, making for another multidecade high; annual Core CPI also surpassed expectations, reaching 6.5% instead of the anticipated 6.4%. Because higher-than-expected inflation numbers tend to prompt central banks to raise interest rates to cool their respective economy in response, the Pound rose on the news accordingly, with traders welcoming the bullish indicator. However, it seems quite plausible that the UK CPI data mislead markets today, because these high figures are not due to traditional economic overheating.
A more fitting target for the blame is the slew of supply side issues stemming from the wartime energy crisis and clunky access to import commodities, driving up food and gas prices. This is why Core CPI in the UK has thus far only increased by a little over half that of CPI, and why the UK’s GDP is contracting, not expanding. These structural issues cannot be resolved merely by a central bank restricting demand vis-à-vis interest rate hikes; rather, either some combination of domestic production and trade must be reconfigured, or many of these tragic conditions must simply be endured, even in the form of stagflation. Whatever comes to pass, this particular kind of high inflation is ominous, and may perhaps be more appropriately filed as bearish for GBP upon a closer look.
Two Potential Pairs to Sell
For those who are looking for opportunities to short the Pound, the following two pairs are viewed favorably for GBP bears by the EdgeFinder, A1 Trading’s handy market scanner. They are listed below with their respective ratings, signals/biases, and corresponding charts. GBP/NZD is perhaps especially worth watching, as the Kiwi Dollar displays impressive fundamentals.
1) GBP/NZD (Earns a Score of -8, or a ‘Strong Sell’ Signal)
2) GBP/CHF (Earns a Score of -3, or a ‘Sell’ Signal)
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)
While the A1 EdgeFinder can aid traders and investors by compiling analysis for currency pairs and stock market indices, it also offers great insight into bond markets as well. This can be helpful to remember considering that US Treasuries, debt securities backed by the US government, often become more enticing for buyers as interest rates rise. This is because Treasury prices fall, and yield rates rise, in conjunction with increases in the Federal Funds Rate; for example, the yield on the 10 Year Treasury Note has risen from about 1.5% to over 3.8% since the beginning of 2022. With the Federal Reserve continuing their aggressive rate hike campaign of historic proportions, and the EdgeFinder issuing bullish signals for certain government bonds, it is worth asking: is it time to buy Treasuries?
10 Year Treasuries or 'T-Notes' are reviewed particularly favorably for traders and investors by the EdgeFinder. They are listed below with their respective rating, signal/bias, and corresponding EdgeFinder breakdown chart. The ten years number within their name refers to their maturation period, one decade over which fixed interest will be paid to the owner; for more information, read here.
US10Y - Earns a 4, or ‘Buy’ Signal