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Even More Bullish USD News

This morning at 8:30 am Eastern Time, the United States’ Bureau of Economic Analysis released even more bullish USD news. The Core Personal Consumption Expenditures (PCE) Price Index, which measures changes in prices for consumers (excluding volatile food and energy prices), rose more than expected month-over-month. A 0.5% increase was expected for August, with 0.6% being the result today; while a 0.1% margin may not seem incredibly significant at face value, it is especially noteworthy because this is the Federal Reserve’s favorite measurement of inflation. This will likely further embolden the Fed in their assumption that more interest rate hikes are necessary to cool a severely overheated US economy.

Best Pairs to Trade

The following pairs are ranked by the EdgeFinder, A1 Trading’s market scanner tool that provides supplemental analysis, as optimal pairs to watch for those who are bullish on USD. They are listed below with their respective ratings and biases, as well as some additional fundamental and technical analysis.

1) EUR/USD (Receives a -6, or ‘Strong Sell’ Signal)

Even More Bullish USD News
Even More Bullish USD News

As can be seen in the line items given for the EdgeFinder score summary above, the US Dollar beats the Euro in all listed categories except retail sentiment and GDP growth, with GDP growth being the Euro's only advantage. Sadly, this will likely not last long due to Europe's energy crisis, which has been exacerbated by this week's mysterious Nord Stream pipeline damage. This pair is on the verge of retesting both trendline and parity resistance, which could prompt a continuation of the downtrend.

2) GBP/USD (Receives a -5, or ‘Sell’ Signal)

Even More Bullish USD News
Even More Bullish USD News

Most of the categories listed above favor USD, while the Pound does have the upper hand in both GDP growth and unemployment. However, these two apparent victories for GBP are not what they seem, as the launching of UK Prime Minister Truss' growth-focused fiscal stimulus ambitions prompted a historic near-crash of the Pound earlier this week. Coupled with the Bank of England's subsequent dovish intervention and recent lukewarm efforts to mitigate inflation, there is little favoring GBP in terms of fundamentals. As with EUR/USD, a retest of resistance seems likely before the downtrend resumes.

3) USD/TRY (Receives a 5, or ‘Buy’ Signal)

Even More Bullish USD News
Even More Bullish USD News

All listed categories besides GDP growth and interest rate divergence favor USD. While these two factors favoring the Lira seem particularly significant, these line items are recontextualized in light of the tragic stagflation and hyperinflation that Turkey is contending with. With an astonishing 80% annual inflation rate, and unemployment over 10%, a 12% interest rate and recent positive Turkish GDP growth are sadly not enough to stop the Lira's crisis from transpiring. It appears we may see a breakout to the upside for this pair, followed by a potential retest of the 18.5 level as support.

When (and How) to Buy Treasuries

This past year has been distressing for economies and markets around the world. From limited supply amid war, geopolitical tensions, and environmental disasters, to scrambled supply chains post-COVID, to flooded money supplies following unprecedented degrees of economic intervention, high inflation has ravaged many countries, and the US is no exception. Given the erratic market behavior that comes courtesy of economic crises, traders and investors may be hunting for safer securities to keep their money in. For those who are looking for the most stable financial assets available, US Treasuries often make the top of the list. Let’s explore when (and how) to buy Treasuries.

What Are Treasuries?

‘Treasuries’ is an umbrella term that refers to many kinds of debt securities for sale via the US Department of the Treasury. Available in short-term T-Bills, 2-to-10-year T-Notes, and 30-year T-Bonds, they are a type of financial asset that enables investors to effectively lend money to the US federal government for a set duration of time and receive a fixed rate of interest in return. Another prominent kind of Treasury are Treasury Inflation-Protected Securities (TIPS), which indexes your money to the rate of inflation in the US.

Why Purchase Them?

Owning Treasuries comes with a variety of benefits that can seldom be found elsewhere among financial assets. Perhaps the greatest perk is extremely low risk, since your purchase comes with a guaranteed return for those holding until maturation, quite different from most financial markets where traders must fend for themselves in terms of risk management. Another factor that minimizes risk is the financial stability of the US federal government, for which bankruptcy is ostensibly impossible.

Are There Downsides?

While there are unique perks to opting for Treasuries over other securities, there are built-in disadvantages as well. For those planning on holding onto a Treasury until it matures, perhaps the most noteworthy is the additional risk of inflation diminishing one’s real rate of return, since inflation is a dodgy phenomenon that cannot be anticipated perfectly.

Combined with frequently low yields on Treasuries the past few decades, there is always a chance that inflation could completely negate the income’s new purchasing power. Additionally, for those who may want to sell a Treasury before its maturation date, there is a significant degree of ‘interest rate risk’ since the security likely won’t have an identical market value to when it was first purchased.

When Are Yields Highest?

If earning passive income is the goal (rather than simply protecting purchasing power via TIPS), timing matters a great deal for the sake of purchasing Treasuries at an optimal price, i.e., receiving a meaningful yield. Historically, higher Treasury yields often correlate directly with a higher federal funds rate (which is intentional, not coincidental), with the 10-Year T-Note yielding over 10% annualized interest in the late 1970s and early 1980s. The more the Federal Reserve raises interest rates, the higher yields are likely to be; considering how hawkish the Fed has recently become to quell high inflation, substantial yields could be around the corner.

How High Could They Go?

If inflation remains a persistent threat, enough for the Fed to continue hiking interest rates according to their most recent projections, the federal funds rate might be raised to a range between 2.9% and 4.4% in 2023. If the fed funds rate does surpass 4% for the first time in over a decade, this may well correspond with the 10-year Treasury doing the same, presenting lucrative buying opportunities for those interested in waiting out high inflation for a longer-term maturation period. It could even be the case that the Fed must hike rates even more severely, in which case Treasury yields could become far greater than currently expected. Currently, the EdgeFinder market scanner rates the US 10-Year and 30-Year Treasuries as a 5 ('buy') and a 6 ('strong buy'), respectively.

Ways to Buy

Anyone may purchase US Treasuries from the US Treasury Department via the TreasuryDirect website, at recurring auctions you can track throughout the year. However, one may also buy or sell Treasuries through a variety of banks, brokers, and exchange traded funds (ETFs).

Takeaways

• In times of market turmoil amid economic uncertainty, it can be helpful to consider safe securities to invest in. Among these options, US Treasuries historically reign supreme.
• There are several different kinds of Treasuries which have different maturation lengths, including T-Bills, T-Notes, T-Bonds, and TIPS (which are indexed to inflation).
• US Treasuries are debt securities backed by the US federal government. They enable buyers to lend money to the US government in exchange for fixed interest payments.
• There are certain benefits to owning Treasuries that are quite rare for financial assets. Chief among them is a near absence of risk, as fixed interest payments guarantee specific returns and the chances of the US federal government going bankrupt are near-zero.
• However, there are downsides to owning Treasuries too. Perhaps the biggest risk for those holding on until maturation is that the severity of inflation will impact the real rate of return.
• For those who may want to sell a Treasury before maturation, there is ‘interest rate risk’: the Treasury’s new market value may have depreciated from the time it was purchased.
• Thus, to maximize income from Treasuries, it is helpful to wait until Treasury rates are optimal. Historically, the higher the US federal funds rate is, the better Treasury yields will be.
• Depending on how high the Federal Reserve sets the fed funds rate, it is possible that the 10-Year Treasury yield could cross well above an annualized rate of 4% for the first time in over a decade. This rate could potentially far outlast high inflation, bolstering returns.
• While all kinds of Treasuries are available directly through the TreasuryDirect website at recurring auctions, they are also available for purchase through brokers, banks, and ETFs.

Shock: Best Pair to Buy?

News for USD/TRY

Today, Turkey’s citizens and the financial world received astonishing news: Turkey’s central bank, the Central Bank of the Republic of Turkey (CBRT), decided to lower interest rates amid an inflation rate just shy of 80% year-over-year. The CBRT cut rates by a full percentage point, down to 13% from the previous 14%. Most orthodox economists appear to be baffled by this act of stimulus as Turkey grapples with a years-long economic crisis that has burdened the country with stagflation and a rapidly depreciating lira. Thus, it is almost universally regarded as a complete monetary misstep, as reflected in USD/TRY currently soaring 0.62% intraday.

Shock: Best Pair to Buy?

Erdoğan’s Economics

This dovish decision appears to be due to a concerted effort by Turkish President Recep Tayyip Erdoğan to influence the CBRT and deter them from their policymaking responsibilities. He has frequently tried to force their hand into preventing hawkishness, referring to interest rates as “the mother of all evil.” There are multiple factors contributing to this unique position of his, including esoteric views on the effects of interest rates (it is well documented that he believes interest rate hikes somehow cause inflation) and religious convictions. Given the ideological rationale behind these stances, as well as his increasingly authoritarian leadership, it is unlikely the CBRT will be able to pivot towards practical hawkishness anytime soon.

Shock: Best Pair to Buy?

EdgeFinder Analysis

According to the EdgeFinder, A1 Trading’s helpful market scanner for those desiring supplemental analysis, USD/TRY remains the top-rated pair for bulls. Earning a score of 5, or a ‘buy’ signal, USD beats TRY in every listed category besides GDP growth and interest rate divergence. However, given Turkey’s rampant stagflation issues that have only been exacerbated by recent high energy costs, as well as ‘real’ interest rates in Turkey being estimated at -16%, USD/TRY appears to have buying potential for the foreseeable future.

Why Global Recession Is Still Likely

On Friday this past week, the United Kingdom’s Office for National Statistics released the latest reports on the UK’s Gross Domestic Product (GDP), a means of measuring economic output. It was revealed that their economy grew by -0.6% month-over-month, and -0.1% quarter-over-quarter, which entails a contraction for both timeframes. Although these numbers are less disastrous than had been forecast, they are unfortunately part of a trend: New Zealand has also suffered a contraction in GDP, while the United States has experienced two consecutive quarters of contraction, a technical recession. While these declines in output are historically strange, seemingly contradicting recent phenomena like relatively high levels of employment and stock market rallies, they ought to be taken into account by traders nonetheless. Let’s explore some of the root causes of these contractions as well as factors exacerbating them as we discuss why global recession is still likely.

1) Restricted Supply

Often when inflation occurs, it is because demand for a product or service is rising at a faster rate than the supply of the product or service itself. However, this is not always the case; sometimes, inflation is caused primarily by a decrease in the supply of a thing, rather than growing demand alone. We are experiencing this phenomenon today with high food and energy prices, which explains why CPI has far outpaced core CPI (which excludes volatile food and energy prices) in many countries.

Because commodities like oil and commodity crops are scarce resources that consumers rely on to live, geopolitical problems like the invasion of Ukraine and resulting sanctions, as well as environmental problems such as heatwaves, droughts, and famines, restrict available supply. Many of these problems either are or can become chronic and near-ubiquitous, leading to persistent inflation from shortages that cannot be resolved through contractionary monetary policy.

2) Interest Rate Hikes

While interest rate hikes are a crucial monetary policy tool for curbing inflation and cooling an overheating economy, they also come with a nasty side effect: slower growth. This is because rising interest rate are designed to stifle growth by limiting consumers’ and businesses’ ability and desire to borrow money, restricting spending and thus the chances of inflation.

While lower GDP growth, even a contraction, does not necessarily create a recession, it is nonetheless playing with fire by taking steps in that direction. This is especially relevant considering that many central banks, such as the Federal Reserve and the Bank of Canada, have begun fully embracing hawkishness through unusually aggressive rate hikes.

3) Trade Deficits

Another economic factor that often quite literally detracts from a country’s GDP is trade balance. Some wealthy countries have negative trade balances, or trade deficits, created by their imports exceeding their exports. While a trade deficit might grant consumers more access to lower priced goods from other countries, it also results in a net loss of economic output that is subtracted from GDP. When trade deficits are frequent, as in the case of the US, this can theoretically severely impede economic growth, which likely contributed to the country’s technical recession. Both the UK and New Zealand have recently been reporting trade deficits as well, which is unsurprising.

4) Underfunded Pensions

Across the developed world, underfunded pension programs are proving to be a difficult problem to contend with. With large percentages of many countries’ workforces retiring, public pension systems such as Germany’s are struggling to keep up, with the German government bailing out the program with €100bn in 2021. Likewise, Social Security in the US is expected to be trillions of dollars behind in long-term funding, despite the average annual benefit amounting to less than $20,000 per recipient. Failure to improve pensions severely limits demand and growth within an economy, since a large chunk of many countries’ populations are retired adults who still spend.

5) Real Pay Cuts

Some economists worry about the possibility of high inflation combined with hot labor markets creating a ‘wage-price spiral’ where inflation persists uncontrollably due to rising employee earnings. However, the truth appears to be less fanciful, and grimmer. Even with today’s historically high rates of increasing incomes for working people, year-over-year inflation completely negates these raises in most circumstances. For example, with average hourly earnings increasing over 5% in the US, when we account for 8.5% year-over-year CPI, this implies a real pay cut of approximately 3% for working people. This entails a net loss in consumer spending, which means less revenue for businesses, and thus lower GDP growth.

6) Self-Fulfilling Prophecy

For better or for worse, market sentiment has a hand in creating fundamentals (by allocating capital), not just the other way around. Thus, if dread about a global recession continues to loom in the public consciousness, traders and investors may respond by buying and selling accordingly, potentially accelerating a coming recession with stock market and forex selloffs. In this way, the general perception of an impending global recession alone can play a large role in creating one.

Consequences for Pairs?

Lately, much of traders’ fundamental analysis has focused on how central banks respond to inflation as the primary economic threat. However, if global recession becomes a reality, there is a chance we could see central banks return to their dovish ways, which may warrant reassessing pair biases from scratch. It is also worth noting that these hypothetical dovish pivots may not occur in the face of stagflation, which unfortunately seems possible given supply concerns.

Key Takeaways

• A number of countries are currently experiencing negative GDP growth, i.e., contractions in economic output, which traders should take into account while gauging the likelihood of global recession.
• One aspect of each contraction likely involves the potentially dwindling supply of scarce resources such as crops and oil due to war, sanctions, droughts, and other potentially chronic problems. This lowers the amount of ‘stuff’ there is to buy, shrinking output.
• While interest rate hikes curb inflation within a currency’s host country, they also disincentivize consumers and businesses from borrowing money, restricting GDP growth.
• Economies prone to trade deficits, i.e., spending more on imports than they receive selling exports, impair their GDP growth by net losing output in the trade process.
• Underfunded pension systems, which cause lower benefits for elderly consumers, are proving to be an international problem, limiting consumer demand and GDP accordingly.
• Although wage growth is rising at the fastest rate in years, it still often pales in comparison to high rates of inflation, limiting consumer demand and GDP accordingly.
• Fear of impending recession can become a self-fulfilling prophecy by spooking investors and speculators, encouraging mass selloffs that create the catastrophes they were afraid of in the first place.
• If a massive event such as global recession, or even stagflation, becomes reality, this could warrant a complete reevaluation of pair biases and fundamentals.

Could the US Senate's New Bill Reduce Inflation?

What is the Inflation Reduction Act in the US?

On Sunday, August 7th, the US Senate narrowly passed a budget reconciliation bill, coined the ‘Inflation Reduction Act’, by a vote of 51-50, with Vice President Kamala Harris breaking a tie. It primarily focuses on three goals: combatting climate change, expanding health insurance coverage, and reforming the tax code to reduce deficit spending. A heavily pared down incarnation of the discarded Build Back Better Act, it is expected to pass in the House of Representatives by the end of this week before being signed into effect by President Biden.

Provisions That Would Supposedly Curb Inflation

The legislation has been particularly marketed by Senator Joe Manchin (D-WV), one of its sponsors, as a means of subduing the 40-year high inflation rates currently gripping the US. The bill would allegedly do this by creating a new 15% corporate minimum tax to close existing loopholes, increasing funding for the IRS to enable higher auditing capacity, and introducing a 1% excise tax for stock buybacks. Between these measures, as well as enabling Medicare to eventually negotiate lower prices for a selection of prescription drugs, an estimated $700+ billion in additional revenue will be raised over a ten-year period. Of these funds, $300 billion will be used in lieu of current deficit spending, theoretically reducing the anticipated national debt increases as well.

Merits and Criticisms of These Claims

An optimistic outlook regarding the possible efficacy of these provisions in curbing inflation rates could highlight the reduction in capital that larger corporations would have available to allocate (for example, Amazon, FedEx, Unum, and many more companies have paid effective corporate income tax rates either at or below 0% in recent years). Net corporate subsidies stimulate the economy, increasing growth and thus inflation, while net corporate taxes restrict it.

However, a more skeptical outlook confronts the likely insignificance of these decreases in the deficit over a ten-year period. Given the United States’ $25 trillion GDP, penchant for trillion-dollar federal budget deficits, $30+ trillion national debt, and the effects of $8.9 trillion in mid-pandemic quantitative easing, a $300 billion promise in federal savings over a ten-year period is rather negligible. Slowing additions to the money supply by a fraction of a percent of GDP will likely not have much of an effect on slowing year-over-year inflation nearing double digits.

Potential Effects on Major Pairs

While it is difficult to say for certain, I am anticipating that if this legislation is signed into law, it will have either a minimal or virtually no effect on inflation and most USD fundamentals. I am personally maintaining my bullish bias on USD, and currently have open positions selling AUD/USD, NZD/USD, and buying USD/CHF. For those who are interested in finding supplemental analysis tools for gauging pair fundamentals and sentiment, consider investing in the EdgeFinder, a robust market scanner from A1 Trading.

4 Ways Housing Bubbles Affect Forex

Throughout much of the developed world, housing prices have recently begun taking a tumble. Home valuations and rent costs had soared to unsettling high levels amid near-zero interest rates and other pandemic-era monetary stimulus; however, near-ubiquitous central bank rate hikes are beginning to bring many countries’ housing prices back down to earth. According to the Economist, in Sweden, home prices declined by almost 4% in June, while in New Zealand they have depreciated from highs for three consecutive months. Considering that real estate remains the biggest asset class in existence, and that housing markets arguably lie at the heart of global economic output, forex traders would be wise to consider these fundamentals when buying or selling pairs. Let’s explore 4 ways housing bubbles affect forex, as well as other markets.  

1) Measures Inflation Rates

For foreign exchange traders, gauging inflation within a currency’s host country is practically essential to fundamental analysis, since it often correlates with economic growth and helps analysts anticipate potential interest rate hikes. While there are many useful measurements of inflation, such as the Consumer Price Index (CPI) and core Personal Consumption Expenditures price index (PCE), measurements like the House Price Index (HPI) and home sales data are also relevant.

This is because higher housing prices and increased home sales are signs of a hot housing market, which indicates higher levels of consumer demand and thus potential inflation. After all, if house prices are increasing, this is typically because more people have money to spend on purchasing a home, whether through income or borrowing. This presupposes that they have general access to financing that they could use elsewhere, driving up prices in other industries too. Therefore, keeping up with the latest housing market data can be handy when it comes to assessing the severity of existing inflation.

2) Influences the Cost of Living

Besides offering data regarding pre-existing inflationary threats and spending patterns, housing market data can also give traders insight into how home prices transform the cost of living. For example, in the US in 2020, according to the Bureau of Labor Statistics, average housing expenditures were over $21,000 per ‘consumer unit’ and accounted for over one third of all consumer spending. This means that the cost of renting a home or taking out a mortgage has serious implications for the overall cost of living.

While rising home prices in general may not contribute to high levels of inflation, this past year’s sky-high prices are not ordinary circumstances: they are symptomatic of a bubble (when prices are far higher than they fundamentally ought to be), created artificially through low-interest loans. When central banks around the world incentivized easy borrowing through low rates and quantitative easing, they encouraged consumers to take out cheap, fixed rate mortgages and other debts while still spending more elsewhere, for the sake of economic stimulus. However, this short-term solution may have disturbing long-term consequences, as high inflation persists globally while rate hikes now abound in response.

3) Guarantees Revenue for Banks

Because commercial banks have multiple revenue streams that include owning mortgages and selling mortgage-backed securities, they have become instrumental to housing market activity. Due to acutely limited supply across many countries’ housing markets (for example, by some estimates, England is over 150,000 new homes behind in construction per year), many home buyers would not be able to afford the purchase without substantial loans from these banks.

However, ‘money-printing’-induced housing bubbles have further bolstered the banking industries via the housing market, and vice versa. When central banks encouraged bountiful lending, spending, and investing, increasing the number of homebuyers, this meant more clients for banks than would have otherwise existed, often including the central banks themselves.

By propping up the banking industries through these new borrowers and asset purchasing programs, this influx of capital also enabled banks to further profit from new investments, exacerbating inflation in a top-down manner due to the artificial, allocated capital. This is because, in many countries, commercial banks can also legally operate as investment banks, generating higher returns on investment by engaging in more risk. For example, this has been the case in the US since the overturning of Glass–Steagall in 1999.

4) Promotes Fragility, Not Stability

Between the recessions created by the 2008 financial crisis and today’s recessions caused by high inflation rates around the world, recent history offers a compelling case: housing bubbles promote economic fragility by accelerating expansion and contraction (i.e., boom and bust cycles). Unfortunately, for now, it appears that this lesson may have been learned too late, as the world’s central banks embark on a mission to crush consumer demand as a sort of necessary evil by venturing deeper into recessions in search of price stability. However, traders can learn to read housing bubble data accordingly, recognizing it for what it is: indications of severe overheating, followed by indications of impending contraction.

Key Takeaways

Shocking News for USD

At 8:30 am Eastern Time today, the Bureau of Labor Statistics reported staggering new US labor market data, revealing a far hotter economy than traders and investors expected. They reported on three different economic indicators, each of which signal roaring US inflation and the likelihood of an even stronger US Dollar in the foreign exchange market. Let’s analyze each of these as we discuss the shocking news for USD.  

1) Average Hourly Earnings (Month-over-Month)

Average hourly earnings, i.e., the cost of businesses paying their employees for labor, were expected to rise by 0.3% month-over-month in the US. Instead, they rose by 0.5%, nearly double that expected. More money in the hands of workers creates more opportunities for consumer spending, which indirectly causes higher prices for goods and services as well, contributing to inflation, which is bullish for USD.

2) Non-Farm Employment Change

Non-farm employment change, or non-farm payrolls (NFP), is the net change in hired people across all industries besides farming. Reported monthly, 250,000 net new hires were forecast to be added to the US economy; instead, the real number was 528,000, more than double that expected. Over half a million new workers will mean far more consumer spending, and also confirms that companies currently have enough revenue to afford to hire them. This number is also significantly greater than last month’s 398,000 jobs added, indicating rampant overheating unthwarted by the Fed, which is extremely bullish for USD.

3) New Unemployment Rate

The new unemployment rate in the US was anticipated to be unchanged from last month’s 3.6%. Rather, the unemployment rate surprisingly declined, settling at 3.5%, a pre-pandemic level. This is shocking data amid a technical recession and rapid, substantial interest rate hikes, and signals that recent high inflation rates are nowhere near dealt with. This labor market is holistically hotter than expected and will likely translate into more buying pressure for USD into the near future, benefitting USD bulls.

Best Pairs to Trade

For those who are interested in exploring which currency pairs present the most promising trade opportunities, consider investing in the EdgeFinder, a helpful A1 Trading tool for supplemental analysis. Fellow analyst Frank Cabibi also wrote an illuminating article on several optimal major pair trade setups for USD bulls that you can read here.

How To Trade GBP Post-Rate Hike

Consideration #1: A Hawkish Bank of England

The morning of Thursday, August 4, the Bank of England (BoE), the United Kingdom’s central bank, enacted a substantial interest rate hike: 50 basis points (bp), bringing the base rate up to 1.75%. The size of this hike is the BoE's largest since 1995, which had last occurred before it had even gained its current institutional independence from the British government. This hawkish development is timely, considering annual inflation in the UK is currently at 9.4%, the highest rate since 1982.

Consideration #2: Context is Key

However, this increased comfort with contractionary monetary policy from the BoE can also reasonably be interpreted as too little, too late. With the highest rate of inflation in the G7, it would be fitting for the BoE to likewise lead by example when it comes to tightening measures. Rather, their first 50 bp rate hike follows the Federal Reserve’s 75 bp hikes, and the Bank of Canada’s full 100 bp rate hike, not even exceeding market forecasts. This hike seems more akin to treading water than rising to the occasion, reminding us that historic doesn’t necessarily mean adequate.

My GBP Bias: Bearish

Despite the BoE’s historically hawkish move, this does not appear to signal a meaningful newfound commitment to subduing high inflation. Thus, I personally do not interpret the narrative surrounding GBP fundamentals to have changed, at least in any significant sense. Considering the lukewarm rate hikes, persistence of high inflation, and the plausibility of eventual stagflation in the UK, I will be looking for opportunities to short GBP against stronger currencies.

Best Pairs to Trade

According to the EdgeFinder, an A1 Trading tool for supplemental analysis, here are two of the most potentially promising pairs to trade for GBP bears: 1) GBP/USD, which earns a -4 ‘sell’ signal, and 2) GBP/JPY, which earns a -3 ‘sell’ signal.

New BRICS Currency Vs USD

What Is BRICS?

The acronym BRICS refers to an economic alliance between multiple powerful emerging economies, including Brazil, Russia, India, China, and South Africa, respectively. Altogether, they currently generate over 25% of the world’s GDP, and are home to over 40% of the global population. While BRICS membership does not necessarily entail exclusive trade perks or benefits, they value geopolitical cooperation with one another, meeting at annual summits since 2009.

How Are They Challenging USD?

Many analysts interpret BRICS as being a response to the West’s expanding geopolitical influence via NATO and the G7, one that grows ever more significant following the invasion of Ukraine. This function is particularly evident given that Russian President Vladimir Putin recently proposed in June that BRICS develop an "international reserve currency based on the basket of currencies of our countries" to rival the US Dollar. If enacted, this could mean the end of an era for USD hegemony on the world stage.

How Serious Are Their Intentions?

China is reportedly aiding in this new reserve currency endeavor, as Western sanctions against Russia pile up while other BRICS countries fear similar treatment. China’s President Xi Jinping has accused the US and its allies of constructing “a small yard with high fences” via economic warfare. This international sentiment is apparently not unique: thus far, five more countries have either applied or plan on applying to join BRICS, including Iran, Argentina, Saudi Arabia, Turkey, and Egypt, with many more countries formally invited. This interest is especially significant in light of the existing tensions between these countries, such as China and India, Iran and Saudi Arabia, etc.

How Could This Affect Major Pairs?

If such an alternative reserve currency is enacted, and subsequently denominates many international trade transactions as the BRICS alliance grows, the foreign exchange market could see a big drop in demand for USD against other currencies. This could also herald the end of the petrodollar since many BRICS countries are prominent oil and gas exporters. Although these ambitious plans will likely not be realized for some time, this could eventually mean a huge paradigm shift for major pair fundamentals.

The A1 Edgefinder is a fundamental trader's dream tool. This market scanner tool allows you to see a variety of metrics such as COT data and retail sentiment on 37 different currency pairs. This week, our team released some major updates on the A1 Edgefinder that you won't want to miss out on. Let's take a peak at the new look:

New Score Meter

The market scanner now has a meter that measures each pairs strength or weakness, making it extremely easy for users to read. This new feature reads from -7 to +7 suggesting whether a pair is a strong sell or a strong buy according to the technical and fundamental metrics that are updated hourly. Right below the meter is a breakdown of all the scores to show which metric carries the most weight for either directional bias. Those scores are tallied up to reach an overall rating on the pair.

New Commodities

Our latest version of the Edgefinder now does commodities like gold and oil. This will allow traders to see what is happening in the commodities market including its strengths and weaknesses relative to the US dollar. These features use the same metrics that are used for currency pairs, which will cause the scanner to react accordingly.

Hourly updates

The information you see on each metric is pulled from pools of data every hour to make sure you don't miss changes going on throughout the day. Some metrics are more prompt than others and require special attention like trend readings, retail sentiment and even economic events. Find out about about an interest rate hike, GDP growth, inflation rates, jobs numbers all within an hour of publication. And of course, you won't be needing to fetch all of these data yourself. The Edgefinder will track it and organize it for you 24 times a day.

Historical Score Chart

The historical score chart is a very important addition to the scanner which allows for the user to see how price performed on any given day and the days after compared to its score.

This new feature is really helpful for tracking price action relative to the overall score of the pair. As you can see, once price moved from a +1 to a +2, the scanner indicated a potential buy here. Then, price shot back up to +3, and price moved up with it.

Get the Edgefinder Today (FLASH SALE!)

Now until Sunday, take 40% off the A1 Edgefinder when you use the code "READER" at checkout!

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