Yesterday, the Federal Open Market Committee (FOMC), the Federal Reserve’s policy-making body, implemented yet another 75 basis point interest rate hike. While this move was perfectly in line with market forecasts, Chair Powell’s comments following the subsequent press conference, in which he discussed the FOMC’s new set of economic projections, were significant. He continued to emphasize the Fed’s commitment to bringing year-over-year inflation back down to 2%, even at the expense of short-term economic growth, offering little in the way of dovishness. These events may become key fundamental catalysts for further bullish USD price action and stock selloffs, hence why the new FOMC decision matters.
Top Pairs to Trade
Because the Federal Reserve has re-upped its commitment to contractionary monetary policy, which is favorable for the US Dollar’s value in the forex market, USD bulls have ever more reason for fundamentals to be on their side. The following pairs are among the EdgeFinder’s top recommendations for USD bulls, as can be seen with their respective ratings and biases/signals. The first three pairs have either broken through or just touched support, with potential breakouts to the downside seeming plausible. The fourth pair, USD/JPY, sold off today before finding some support, while even more buying pressure seems likely in light of the Bank of Japan's decision yesterday to continue their ultraloose monetary policy.
1) EUR/USD (Receives a -7, or ‘Strong Sell’ Signal)
2) GBP/USD (Receives a -6, or ‘Strong Sell’ Signal)
3) AUD/USD (Receives a -4, or ‘Sell’ Signal)
4) USD/JPY (Receives a 4, or ‘Buy’ Signal)
Statistics Canada released a surprising new batch of inflation data this morning: month-over-month CPI failed to meet market forecasts, declining by 0.3% instead of the anticipated 0.1%. Rather than being an outlier, the other measurements of CPI mostly followed suit, as both year-over-year Trimmed CPI and Median CPI likewise failed to meet expectations. Trimmed CPI’s poor performance, clocking in at a 5.2% increase year-over-year instead of the expected 5.5%, could be interpreted as particularly significant in that it excludes the 40% most volatile prices. This may theoretically set CAD fundamentals apart from USD, in that the Federal Reserve has incentive to keep hiking interest rates due to stubborn core inflation, while the Bank of Canada no longer does. Regardless of your overall Canadian Dollar bias, this is shocking CAD inflation news.
Best Pairs to Trade
While there are multiple ways to take this news, I personally have two takeaways: 1) USD/CAD bullishness now seems more compelling in light of the growing disparity between Canada’s inflation problem and the US’ inflation problem, and 2) the market reaction to this news could present discounted opportunities to buy CAD against less promising currencies. These readings are consistent with current EdgeFinder signals as well, as can be seen with the following pairs:
1) USD/CAD (Receives a 3, or ‘Buy’ Signal)
Price action has just hit a historic resistance zone, with Keltner Channels also indicating overbought conditions. Conservative traders may want to wait for a more optimal buying opportunity, though there may be some breathing room left before hitting the upper trendline and top of this resistance zone.
2) GBP/CAD (Receives a -6, or ‘Strong Sell’ Signal)
Price action is currently retesting the depicted zone as resistance and could potentially serve as an optimal selling point.
3) NZD/CAD (Receives a -4, or ‘Sell’ Signal)
Despite the bearish CAD news and support at 0.79, price action has still been bearish for this pair today. There is also ample room to potentially continue selling off before touching support from the lower trendline.
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.
This morning, at 8:30 am Eastern Time, the United States’ Bureau of Labor Statistics revealed that inflation had once again beaten expectations. Market forecasts had anticipated a 0.1% decrease in month-over-month CPI in August, whereas a 0.1% increase was the result. However, even bigger news was month-over-month Core CPI coming in hot at 0.6%, double the 0.3% increase that had been forecast.
With annual core inflation in the US currently sitting at 6.3%, sharp declines in volatile energy prices are still not enough to bring the country’s inflation train to a screeching halt. This gives the Federal Reserve further incentive to continue raising interest rates, which manifested in a surge of buying pressure for USD this morning as the US Dollar Index jumps 1% intraday. With even a technical recession and a rising unemployment rate unsuccessful in completely mitigating economic overheating, USD bulls may have fundamentals on their side for the near future.
Three Great Major Pairs
The following major pairs are ranked favorably for USD bulls by the EdgeFinder, A1 Trading’s software tool that provides supplemental analysis. Based on criteria ranging from fundamentals to trader sentiment, those who are bullish on USD may want to watch these pairs for potential opportunities to go long on the Greenback:
1) EUR/USD (Receives a -5, or ‘Sell’ Signal)
2) GBP/USD (Receives a -5, or ‘Sell’ Signal)
3) USD/JPY (Receives a 4, or ‘Buy’ Signal)
(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’)
On September 2nd, tomorrow morning, at 8:30 am Eastern Time, the Bureau of Labor Statistics is scheduled to release another crucial round of US labor market data for last month. The public will learn 1) how average hourly earnings, i.e., labor prices, have changed month-over-month, 2) how many non-farm payrolls (NFP) were added, and 3) what the new national unemployment rate is. These three bits of information will likely cause a great deal of volatility among major pairs.
How Is This Significant?
These metrics offer traders key insight into how hot the US labor market still is, which plays into overall inflation because of its reciprocal relationship with consumer demand. If these numbers beat market forecasts, then the Federal Reserve will be even more incentivized to hike the federal funds rate to slow the economy, which is bullish for USD. However, if the data fail to meet forecasts, this would be bearish for USD accordingly. Current expectations are: 1) average hourly earnings to increase by 0.4%, 2) 295,000 net new hires across non-farm industries, and 3) a static unemployment rate, remaining at 3.5%.
Possible Pairs to Trade
According to the EdgeFinder, A1 Trading’s market scanner that offers supplemental analysis for traders, the following are currently three of the most promising major pairs to trade for USD bulls. Whether you plan on entering a position before tomorrow’s big news, or wait until the data is revealed, these three pairs are worth watching.
1) EUR/USD (Earns a -7, or ‘Strong Sell’ Rating)
2) GBP/USD (Earns a -7, or ‘Strong Sell’ Rating)
3) USD/JPY (Earns a 4, or ‘Buy’ Rating)
Federal Reserve Chair Jerome Powell made a market-moving speech this morning, striking a deliberately hawkish tone regarding the taming of inflation continuing to be the Fed’s priority. While USD is surging against other currencies as markets now expect further interest rate hikes with a greater degree of certainty, let’s explore another currency that may be quite undervalued: the Canadian Dollar. Let’s discuss CAD’s fundamentals, and 3 great CAD pairs to potentially trade next week.
What’s Special About CAD Fundamentals?
Taken at face value, the state of Canada’s economy may not seem especially impressive in terms of fundamental analysis for forex. Annual inflation (7.6%) is high, but not shockingly so relative to other economies, and the unemployment rate hovers just shy of a mediocre 5%. However, upon a closer look, there are many impressive aspects to it, including an extremely hawkish Bank of Canada, a key interest rate identical to that of the US, and positive GDP growth. On top of these conditions, Canada consistently exports oil and gas to the US, an economy approximately ten times bigger, and the estimated value of Canada’s natural resources is over $30 trillion, among the highest in the world.
Best Pairs to Trade
For those who are interested in going long on CAD, here are three of the EdgeFinder’s top-rated suggestions for CAD pairs to sell, along with their respective ratings:
1) GBP/CAD (Earns a -8, or 'Strong Sell')
2) EUR/CAD (Earns a -7, or 'Strong Sell')
3) NZD/CAD (Earns a -3, or 'Sell')
The next few days will likely be full of unusual degrees of volatility in both the forex and stock markets. Let’s discuss why, and how to prepare for it, as we issue an urgent warning: Jackson Hole is here.
What is Jackson Hole?
The Jackson Hole Economic Symposium, often simply referred to as ‘Jackson Hole’, is an exclusive, three-day annual conference sponsored by the Federal Reserve Bank of Kansas City. Held in Jackson Hole, Wyoming since the early 80s, the conference is an extremely significant event for traders and investors, as it is attended by many of the biggest movers and shakers in the global financial markets. Invites are reserved for influential investors, prominent government officials, economists, and central bankers, and media coverage of comments and speeches at the event can heavily influence market sentiment and price action.
Potential Impact on Major Pairs
Jackson Hole is an extremely difficult event to prepare for because coverage is extensive, and any number of off-hand remarks could have dizzying unexpected consequences. With the conference kicking off today, traders should take caution since the forex and stock markets could easily become the wild west over the next few days, with any number of catalysts surfacing.
Tomorrow at 10 am Eastern Time, Fed Chair Jerome Powell is set to give a Symposium speech on economic outlook which will likely address the dual problems of inflation and recession, wherein he will offer hints at Fed policy plans. Depending on whether his remarks are interpreted as hawkish or dovish, this could potentially cause USD to either plummet or soar against other currencies. With a smaller Q2 US GDP contraction than originally estimated, and Core PCE Price Index (the Fed’s preferred measure of inflation) numbers also coming out tomorrow at 8:30 am, traders, Powell, and conference attendees will all have much to chew on.
Possible USD Setups
According to the EdgeFinder, A1 Trading’s market scanner tool that helps traders conduct analysis, here are three of the top-rated pairs to sell for USD bulls. All three have recently hit key support zones, though no breakouts from their clear downtrends have yet to occur. If Powell comes across as particularly hawkish tomorrow, this could prompt breakouts to the downside, and continuation for the existing downtrends. However, if he comes across as dovish, we may see support hold, along with breakouts to the upside, disrupting these downtrends.
Tomorrow, the UK is going to announce their monthly adjusted GDP for July. Pound pairs are volatile today while uncertainty and doubt in the central bank's policies going forward. The direction of GBP will likely be shaped by tomorrow's numbers, but here are some factors to consider.
If the UK announces a fall in GDP, which is expected, the BoE might have to start loosening up on the pound. Deterring focus from the strength of their currency would result in a stronger economy. The downside to that is an acceleration of inflation.
The expectation is a considerable drop from June, so we could see a beat in forecasts while still looking at a lower growth in output. Either way, it looks like the UK is in for some bad news.
Another thing to consider is that the equities market in the US getting stronger each day on good inflation and jobs numbers within the past week. There is a strong correlation between the British pound and the S&P 500 index. If equites continue to rise, GBP could ride on the coattails.
It's now much tougher to tell where stocks are headed as well. Investors do see a light at the end of the tunnel, however, rates will only continue to rise. The question of whether or not the US is still experiencing a bear market rally or entered a new bull market is still up in the air.
GU rises with US equities as investors wait for GDP numbers to come out tomorrow. The pair is coming up near resistance around 1.22961. If GDP comes in lower than last month, investors might think that BoE will have to reduce hawkishness to focus on economic growth. This would likely take the pound lower, although a strong US stock market is carrying GU with it.
A big break in support on pound-aussie looks extremely bearish for the pair. If this candle closes below the 1.71748 level, we could expect further downside for some time. A new level of resistance looks to be in the making on the 1D timeframe which would be a tough level to break back above.
Pound-CAD looks weaker too. Price fell lower on the 4H timeframe as it nears the falling trend line for support. Lower highs and a fail to test resistance suggest weakness in the pair. Price may come down to test 1.55075 should we see another sell off.
Consumer Price Index numbers will come out tomorrow with the anticipation of a slowdown in inflation. This index takes all goods and services purchased by consumers and measures their prices against the previous month. Investors will get an idea of whether or not the Fed is staying the course, too aggressive or too loose. Here's why you should trade these pairs before tomorrow.
The RBA fears slowing the economy should they continue to raise their rates. Unlike the US, Australia is not showing positive growth in jobs or output which is hinting towards their central bank taking a less hawkish approach and lessening the rate hikes. Investors are looking towards weakness in the buck and are looking for further downside on this pair.
AU just came back up to test a falling trend line on the 4H which it couldn't break above. The pair is also in a fib resistance zone while forming lower highs. Price may start to move downward towards the 0.69125 level where there are a couple bottoms.
After a handful events in the UK, the value of the pound is very much up in the air. Uncertainty clouds investors' grim outlook on the economy and currency. British GDP numbers are expected to come out lower and even negative, which compared to last month, was 0.50%. This will also give us an indication of whether or not the BoE will keep hiking as much as they have, or if they'll take their foot off the pedal for a while.
Should lower GDP numbers come in for GBP, we can expect the pair to turn lower. On the 1D timeframe, price is showing another day of rejection from the highs of the day. Price may continue lower to test the falling trend line. We can see a move as low as the bottom at 1.17631.
UJ has been a volatile and unpredictable pair for the most part this year. Long term, we might be able to expect a stronger USD over the yen although both currencies are considered risk-off. Latest NFP numbers suggest that the Fed can keep hiking rates. And tomorrow's CPI might further indicate that argument's validity.
The pair has not really moved this week but has stayed just above a previous resistance level around 134.597. A move down could lead price to hit the rising trend line on the 1D timeframe, while an upward surge could take the pair all the way to the highs of 138.700s.