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The Art of Not Trading

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.

1) Rest

The Art of Not Trading

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.

2) Backtest

The Art of Not Trading

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.

3) Read

The Art of Not Trading

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.

5 Strongest Pairs to Trade

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

5 Strongest Pairs to Trade
USD beats CAD in every listed category besides inflation (although annual inflation in the US remains slightly higher than in Canada).
5 Strongest Pairs to Trade
This yearlong uptrend has been impressive, with a sustained breakout above key resistance.

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

5 Strongest Pairs to Trade
NZD beats CAD in every listed category besides inflation and interest rate divergence (although annual inflation in New Zealand remains higher than in Canada, and their benchmark interest rates are identical).
5 Strongest Pairs to Trade
The past few months have given way to incredible bullish momentum following October's reversal.

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

5 Strongest Pairs to Trade
EUR beats JPY in every listed category besides inflation and unemployment; interest rate divergence is especially significant in light of the EU's departure from ultraloose monetary policy, which contrasts sharply with Japan.
5 Strongest Pairs to Trade
This yearslong uptrend has reached highs not encountered since 2015.

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

5 Strongest Pairs to Trade
NZD continues to beat AUD in every listed category.
5 Strongest Pairs to Trade
The aggressive selloff continues following October's stunning breakout below trendline support.

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

5 Strongest Pairs to Trade
NZD continues to beat GBP in every listed category.
5 Strongest Pairs to Trade
Trendline resistance spanning over a decade continues to hold as key support is yet again retested.
Warning: US CPI Tomorrow

Tomorrow morning at 8:30 am ET, the United States Bureau of Labor Statistics is scheduled to release the latest Consumer Price Index (CPI) data for the month of November. Widely considered a proxy for inflation, the rate at which CPI increases will help the American public and the Federal Reserve discern how much of a threat high inflation continues to pose. Month-over-month CPI is forecast to slow to a 0.3% increase, while month-over-month Core CPI (which excludes volatile food and energy prices) is anticipated to clock in at 0.3% as well. If the real numbers exceed these expectations, this would be bullish news for USD and bearish news for stock market indices, whereas the inverse would be true if the numbers come in smaller. This is because hotter inflation data gives the Fed further incentive to raise interest rates to cool the economy, which strengthens the Greenback while diminishing demand for stocks. With the Fed’s next rate hike and press conference coming just two days from now, we must issue a warning: US CPI tomorrow is just the beginning for major pairs and equities.

Three Pairs to Watch

Considering that the latest Producer Price Index data released last week was quite bullish for USD, it seems plausible that tomorrow's CPI updates could yield similar results. With this in mind, for those interested in going long on USD, here are three potential pairs to watch for trade setups. While the EdgeFinder, A1 Trading’s handy market scanner, is reasonably cautious about some of them, new momentum from a fundamental catalyst could correlate with new biases being generated which are more optimistic for US Dollar bulls. They are listed below with their respective ratings, signals/biases, and corresponding charts.

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

Warning: US CPI Tomorrow
Warning: US CPI Tomorrow

2) USD/JPY - Earns a ‘1’ Rating, or a ‘Neutral’ Signal

Warning: US CPI Tomorrow
Warning: US CPI Tomorrow

3) AUD/USD - Earns a ‘-1’ Rating, or a ‘Neutral’ Signal

Warning: US CPI Tomorrow
Warning: US CPI Tomorrow
Time to Buy CHF

As the Swiss National Bank (SNB) gears up for a likely new interest rate hike on Thursday, December 15th, financial markets will be watching. Chairman Thomas Jordan of the SNB has made these hawkish intentions clear repeatedly; this contractionary agenda would be the continuation of Switzerland’s recent departure from ultraloose monetary policy. Negative interest rates had been a years-long precedent for the central bank prior to the SNB’s shocking pivot towards tightening over the course of 2022, as high inflation grips the global economy. These rate hikes contribute to a greater valuation for the Swiss Franc, which already displays impressive fundamentals thanks to the stability of Switzerland’s economy. This reflects in the EdgeFinder’s positive analysis of the currency, which has aided in generating several new signals for CHF pairs; they are listed below with their respective ratings, signals/biases, and corresponding charts. As potential trade setups emerge over the coming week, it is worth asking: is it time to buy CHF?

1) CHF/JPY - Earns a ‘5’ Rating, or a ‘Buy’ Signal

Time to Buy CHF
Time to Buy CHF

2) AUD/CHF - Earns a ‘-4’ Rating, or a ‘Sell’ Signal

Time to Buy CHF
Time to Buy CHF

3) CAD/CHF - Earns a ‘-4’ Rating, or a ‘Sell’ Signal

Time to Buy CHF
Time to Buy CHF
PPI and More Tomorrow

Between fresh numbers for US PPI and more tomorrow, there is a good chance that forex and equities traders could encounter increased volatility across financial markets. First, at 8:30 am ET on Friday, tomorrow morning, the United States Bureau of Labor Statistics is scheduled to release the latest increases for the Producer Price Index (PPI; measures changes in the prices of goods and services sold by producers) and Core PPI (which excludes volatile food and energy prices), both month-over-month. These measurements of inflation are both currently forecast to have risen by 0.2% in the month of November; if the real figures fall short of these expectations, this would be bearish news for USD and bullish news for the US stock market, whereas the inverse would be true if the real PPI numbers exceed these expectations.

Second, at 10 am ET tomorrow, the University of Michigan in the US is going to publish the Preliminary release of their Index of Consumer Sentiment report. Released monthly, the index is based on data regarding the economic confidence of consumers gathered via survey; it acts as an indicator for economic optimism or pessimism, which can have big implications for financial markets. With the index anticipated to hit 56.9 this month, a larger number would signal more consumer optimism, which would be bullish news for USD and bearish for stocks. However, if the report fails to hit these forecasts, this could likely be bearish news for USD and bullish for the stock market. This is because, as with the PPI reports, hotter-than-expected growth and demand could cause the Federal Reserve to lean further into monetary tightening and hawkishness, which would fly in the face of investor hopes as reflected in the recent months’ stock market rally. Regardless of bullish or bearish biases, traders would be wise to keep an eye on these releases, as they may have a significant impact on price action tomorrow.

What Assets to Watch

While the EdgeFinder does not currently view the US Dollar in a particularly favorable light, it has generated one such bullish signal for a major pair. That pair is listed below, along with two assets worth watching for potential trade setups if tomorrow’s news is bearish for USD. They are all listed below with their respective ratings, signals/biases, and corresponding charts.

1) USD/CAD - Earns a ‘5’ Rating, or a ‘Buy’ Signal

PPI and More Tomorrow
PPI and More Tomorrow

2) US30 (Dow Jones) - Earns a ‘4’ Rating, or a ‘Buy’ Signal

PPI and More Tomorrow
PPI and More Tomorrow

3) XAU/USD (Gold) - Earns a ‘2’ Rating, or a ‘Neutral’ Signal

PPI and More Tomorrow
PPI and More Tomorrow
Best Pairs to Sell This Week

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

Best Pairs to Sell This Week
NZD beats the Pound in every listed category, perhaps most notably in interest rate divergence, COT data, and GDP growth.
Best Pairs to Sell This Week
Trendline resistance is remarkable, spanning nearly two decades. Key support has been tested repeatedly since 2018, thus far to no avail.

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

Best Pairs to Sell This Week
NZD likewise beats the Aussie Dollar in every listed category, with the same strong points mentioned with GBP/NZD.
Best Pairs to Sell This Week
This past year's impressive uptrend has been disrupted by an aggressive breakout to the downside, aided by EMA resistance.

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

Best Pairs to Sell This Week
NZD beats the Euro in every listed category, except for both COT data and retail sentiment.
Best Pairs to Sell This Week
Trendline resistance appears compelling, though higher lows are also evident since April of this year.
Kiwi Dollar Spike Tomorrow

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

Kiwi Dollar Spike Tomorrow
Every line item in the Score Summary list favors NZD over GBP, factoring in fundamental, technical, and sentiment analysis.
Kiwi Dollar Spike Tomorrow
This monumental downtrend is years in the making.

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

Kiwi Dollar Spike Tomorrow
Every line item in the Score Summary list favors NZD over AUD, factoring in fundamental, technical, and sentiment analysis.
Kiwi Dollar Spike Tomorrow
October's huge breakout to the downside of trendline support has given way to an aggressive new downtrend.

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

Kiwi Dollar Spike Tomorrow
Although NZD beats JPY in a number of key categories, perhaps the most crucial is interest rate divergence, as the RBNZ and the Bank of Japan engage in starkly different projects in terms of monetary policy.
Kiwi Dollar Spike Tomorrow
This uptrend has held strong for over two years now.
UK CPI Data Mislead Markets Today

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)

UK CPI Data Mislead Markets Today
UK CPI Data Mislead Markets Today

2) GBP/CHF (Earns a Score of -3, or a ‘Sell’ Signal)

UK CPI Data Mislead Markets Today
UK CPI Data Mislead Markets Today
Surprising PPI Numbers Today

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)

Surprising PPI Numbers Today
Already struggling with double-digit inflation exacerbated by Russia's invasion of Ukraine, Europe's economic predicament could grow worse as winter approaches, likely increasing demand for energy and driving up oil and gas prices amid low supply.
Surprising PPI Numbers Today
Despite the strong breakout to the upside, key resistance has been encountered, and Keltner Channel walls suggest overbought conditions.

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

Surprising PPI Numbers Today
Although the Dow Jones Industrial Average's month-long rally has been historic, most institutional traders are still going short.
Surprising PPI Numbers Today
On one hand, a year-long downtrend has been disrupted with a breakout to the upside. On the other hand, key resistance is near, around 34000.

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

Surprising PPI Numbers Today
Despite the strong downtrend, lower supply due to wartime conditions and OPEC+ restrictions on production, in conjunction with higher demand in wintertime, could cause prices to soar in the near future. Also, nearly 80% of institutional traders are still going long.
Surprising PPI Numbers Today
Although resistance was encountered at the 92 level, it appears an uptrend could be beginning to form.
3 Strongest Pairs to Buy

As we wait for major economic news releases this week (such as monetary policy meeting minutes from the Reserve Bank of Australia tonight at 7:30 pm ET, United States Producer Price Index numbers tomorrow at 8:30 am ET, and Consumer Price Index updates from the UK on Wednesday at 2 am ET), it can be helpful to consider what pairs the Edgefinder already signals to be particularly worth watching. With this in mind, here are the EdgeFinder’s current 3 strongest pairs to buy this week, listed below with their respective ratings, signals/biases, and corresponding charts. Additional comments on fundamentals and technical analysis will also be provided.

1) CHF/JPY (Receives a 5, or ‘Buy’ Signal)

3 Strongest Pairs to Buy
Despite the similarities between these two countries' economies in terms of stability and hot labor markets, the Swiss National Bank's willingness to raise interest rates is decidedly bullish for CHF, while the Bank of Japan instead continues to keep its monetary policy 'ultraloose'.
3 Strongest Pairs to Buy
While the uptrend has paused, strong support has been found around the 146 level.

2) USD/CAD (Receives a 5, or ‘Buy’ Signal)

3 Strongest Pairs to Buy
The US economy notably outpaces Canada's in terms of labor market activity, economic growth, inflation, and central bank aggression.
3 Strongest Pairs to Buy
Despite the steep fall over the past month, price action is encountering a key support zone; Keltner Channel walls suggest oversold conditions.

3) NZD/CAD (Receives a 4, or ‘Buy’ Signal)

3 Strongest Pairs to Buy
Despite the Reserve Bank of New Zealand lagging behind the Bank of Canada regarding interest rate divergence, this may not last long, considering New Zealand is currently leading in terms of holistic overheating.
3 Strongest Pairs
It appears a significant breakout to the upside may have just occurred within the past week, disrupting a year-long downtrend.
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