Just before the scheduled shutdown at 12:01 am on Sunday, Congress voted to extend the deadline for another 45 days. Yields jumped higher to above 5.1% which has remained elevated for some time. As we enter an historically bullish month for the indices, here are some setups on dollar, gold and index setups
EdgeFinder Analysis
The SPX500 is still a very bearish reading on the EdgeFinder as a result of recent events. Retail and COT seem to be mixed in net positioning, although last Friday's report suggested another shift in sentiment. What we can also take away from last week from lower GDP and PCE is that the Fed may consider pausing again in November.
Investors are very much going to pay attention to this week's JOLTS and NFP numbers this week. Expectations are higher job openings and lower NFP. Although analysts are expecting higher openings, the lower number of jobs actually added could be lower, which is what index bulls want to see.
Gold continues to make lower lows on the 1D timeframe. Price is now between two levels of support and resistance that are quite a ways from each other. These levels are key in figuring out the longer term trend. After breaking underneath the $1880s level, the metal may continue lower to test $1810.
Last week, a death cross formed between the 50 and 200 DMAs suggesting that a downtrend has formed. With higher dollar prices and higher yields, it seems likely for the metal to move lower onto this support zone. COT also suggests bearishness as they reported to be 3.5% bearish in net change last week.
EURUSD is one of the strongest bearish readings on the EdgeFinder right now. Seasonality and trend readings point to further lows this month as the dollar kicks off strong. October is the second most bearish month of the year for the pair.
Smart money is selling the pair this week, and retail is majority long. There is not one category that the euro has over the dollar. This Friday's NFP will add some more damage to the score if they come out higher than expected. But if NFP falls again, this could be a bullish sign for the pair.
Retail Spotlight
Retail is mostly short the USD and indices as well. AU, NU and GU are the top three most longed in the retail crowd. However, COT positioning has a different idea.
Smart Money Spotlight
The smart money tracker shows a good bit of buying in the SPX500, NZD and JP225. Meanwhile, gold, pound and US30 are getting sold. This week looks like some mixed sentiment on the indices as investors await the jobs number this week.
Fundamental Spotlight
The chart above is unemployment rates around the world. They have all experienced some sort of decline since 2020, but a handful of them seem to be flatter in recent quarters. If the US can see higher unemployment and lower NFP, then this would be a bullish case for the indices and weakness for the dollar.
GDP numbers came in lower than expected in the US, marking the third straight drop in economic output. This is usually good news for the stock market indices and gold, however, bond yields continue to hold up above 5.1%. Here are some potential trade setups for both dollar and index longs depending on how the market performs the rest of the week:
EdgeFinder Analysis
AU is sitting at a -10 strong bearish score on the EdgeFinder. In the historically bearish month of September, the pair has well underperformed as risk-off sentiment looms. Recent lower GDP in the US has caught investors' eyes as this could mean a lesser anticipation of Fed interference.
However, yields are still higher and have maintained above 5% for some time. Higher yields is going to continue to put pressure on the risk appetite for now, and AU may continue to form lower lows going into the end of this week.
NAS100 is resting on support as we start the morning off in the NY session. This looks like a strong level of support that price will have to break under if sentiment is still strongly bearish. Otherwise, it could serve as a potential long opportunity post GDP optimism from a lower than expected number.
However, if price were to break this level, we may be looking at another low towards the $14,200s. It's still not a very bullish market right now, and lower lows seem more likely than not. But in case of a switch in sentiment, this index could show resilience at the falling trend line.
EU is another strong bearish reading on our scanner. At -12, the pair is the most bearish. With COT moving starchily against the euro and into the dollar, price doesn't look bullish any time soon. With retail majority long, we can anticipate further bearishness from the pair.
Although on support, optimism from GDP may not be strong enough going forward. The trend and seasonality indicators suggest more downside for the next few months as well. Overall, the USD is sweeping the euro in every sense.
Retail Spotlight
Retail is majority risk-on as they are shorting the USD and buying AUD, NZD and GBP. The indices are mostly mixed with a slight lean to the bearish side.
Smart Money Spotlight
It's important to look at all the data the Smart Money Tracker provides because what looked like a bullish bias on gold this week was actually negative. The table shows how many gold positions were open long to short. The bottom chart shows the number of long contracts between gold and USD added. Because the dollar saw an incredible rise in long contracts, it took the reins against the metal and pushed price lower.
Fundamental Spotlight
Although outpacing the rest of the world, the US is still seeing declines in GDP overall. Seeing this is optimistic for risk-on traders who are looking for less Fed hikes in the future. Outside of inflation itself, the Fed is looking for lower GDP and labor numbers. So, a lower GDP is good for NAS100, but it's unclear if this will be enough to boost morale.
I am the founder of A1 Trading, market analyst, YouTuber, and creator of the EdgeFinder software tool.
I caught a huge winner on USoil with the help of the EdgeFinder! In this article, I’ll walk you through my thought process behind the trade and how I found this crazy runner!
On Wednesday, September 20th, the EdgeFinder was showing a strong bullish bias based on COT and other economic data. On the technical side, I was seeing a strong upward trend on the 4H as well as a bullish rejection on the 1H chart. I decided to enter at 89.583 and place my stop at 88.336.
I got stopped out.
I decided to reenter my oil long the next day, placing stops below previous lows.
I got stopped out again.
Tuesday, September 26th
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Analysis:
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Last Friday's report showed a significant change in global market sentiment from smart money. What COT signaled has turned ultra-risk-off for traders who have been hoping for Fed fears to subside. This news could spark up worries about higher interest rates for the long term.
EdgeFinder Analysis
GBPUSD is now a -12 on the EdgeFinder indicating extreme bearishness on the pair. With a -3 on COT alone, price is being taken under support levels on the 1D timeframe. Retail is majority long this pair as they anticipate a rally some time soon, but it might not come in time.
Due to dollar strength this month, many currencies like EUR, GBP, AUD, CAD have been under pressure. To see the score move heavily from a bearish reading to an even stronger one is not a good sign for this pair.
EURUSD is breaking lows on the 1D timeframe and plummeting lower towards a double bottom. Another COT report showed heavy selling on the euro and heavy buying on the dollar. Price could not break the trend line which suggests price won't be able to until sentiment changes.
The pair looks like it may either test the heavy support level at 1.05152 or it might come up to test the resistance level at either trend line. There is also a new resistance level after price broke lower around 1.06357.
NZDCHF moved from a neutral reading to a bearish reading over the weekend. Although trend reading is strong to the upside, there is some disagreement from seasonality. Smart money had been buying up the Swiss leading up to last week's SNB decision. Meanwhile, the kiwi saw a heavy increase in short contracts.
Although many factors influence price moves, it is important to notice how aggressively smart money moved this past week. Seeing a -12% change to the sell side on kiwi is not common for weekly reports. This was an important pair to highlight for the -3 score in COT as well.
Retail Spotlight
Retail is strongly bullish towards risk-on pairs, specifically the ones against USD and JPY. EJ, UJ, and CHFJPY are the three most shorted currencies from the crowd, and AUDCAD, NZDCHF and GBPCHF are the most bought pairs.
Smart Money Spotlight
If we take a look at last week's activity from smart money, we can tell that institutions across the board are majority long the USD, CHF and JPY. This has not been the case for some time. What is also alarming to investors is the rate at which sentiment flipped in a mere week. EURUSD is the pair being analyzed at the bottom. With a gradual decrease in longs on the euro and a sudden spike in longs for the dollar, EU's positional bias flipped from a +11% to a -7% in such a short span of time.
Fundamental Spotlight
Here are the inflation rates for EUR and AUD who will be reporting CPI later this week. Although inflation does appear to be coming down, the curve appears to be flattening in the most recent months. It is possible these economies could be experiencing sticky inflation like in the US.
The SNB, BoE, and Fed decided to keep rates unchanged at 1.75%, 5.25% and 5.25% respectively. In the ongoing battle for lower inflation, central banks are dedicated to reaching their targets. But at what cost to the economy?
EdgeFinder Analysis
USDCHF is a top bullish reading on the EdgeFinder. Retail has actually been long this pair for some time, so for the first time in a while, they have been correct. Unemployment is also under better circumstances in Switzerland. These two categories have kept the score from moving to a +9.
The SNB and Fed decided to keep rates the same. This is less concerning to CHF because their inflation numbers are actually complying with higher interest. The US however, is experiencing higher CPI with unchanged rates, suggesting that the Fed will either keep rates higher for longer, or bump another 25 bp in the next meeting.
The NASDAQ broke under a strong level of support on the 1D timeframe and is now testing a backup support level around $14,800. Since price hasn't bounced from the lows, we will have to wait for confirmation before considering any rally in the tech market.
If price breaks below this level, there is additional support around $14,550. The break and close underneath the rising trend line is a bearish sign for indices right now, and a growing expectation of further rate hikes could be putting pressure on these markets for a while.
GBPUSD is the strongest bearish reading on the EdgeFinder. At -10, the Euro is swept by the dollar in every category. Technicals are pointing lower, COT is selling euro and buying dollar. This month is historically the worst month for GU as well.
The BoE also maintained rates at 5.25% like the US, but the UK is also in a worse economic position. Inflation is still incredibly high in the UK, especially for the bank rate being on par with the US. For the time being, the pound is not looking strong in any pair either.
Retail Spotlight
Retail is growing a risk-appetite for AUD, NZD and GBP. UJ and USDCAD are now leaning more to the short side of the trade.
Smart Money Tracker
GBPUSD is steadily declining on the net positioning bias. As GBP's contracts are being sold, USD is seeing growth in investor speculation.
Fundamental Spotlight
Latest inflation data shows that the US seems to be the only country struggling with creeping rates. The pound's rate is the highest overall, and CHF is in compliance with interest.
This Wednesday, the Fed meeting will announce their next rate decision. Expectations are largely on the side of a pause although inflation data puts pressure for risk-appetite. Here are some setups we are looking at going in the interest rate news.
EdgeFinder Analysis
AU is one of the strongest bearish readings on the EdgeFinder now. At a -9 score, price is looking very bearish. All factors point towards a stronger dollar except for the unemployment category. Net change on the COT side shows a clear bias towards USD which saw nearly a 3% uptick in long positions. Meanwhile, AUD became more bearish by 1%.
Wednesday's interest rate decision in the US will be a pivotal moment for major pair traders. Despite the concerning rise in inflation over the past few months, investors still seem to be thinking there will be a pause from the Fed this month.
Gold came up to resistance again on the hopes of another pause. However, price has been unable to break this level so far. Until we see a higher move to the upside and a break in this trend line, the bias still looks bearish overall.
COT also showed us a decrease in longs and an increase in shorts on the metal. Seeing that the bias is changing to the bearish side suggests that investors are not confident in a higher gold price this week.
USOil is something to watch as well as we approach Wednesday's decision. Oil has been a very strong bullish reading for a while due to a handful of factors such as smart money, inflation, and GDP. Labor is the only factor that points towards dollar bullishness.
Because we've seen higher NFP numbers and CPI over the span of a few months, oil found strength to the upside. The commodity thrives off higher inflation numbers and will undoubtedly be moving come Fed's interest rate. Higher rates would not be good for oil, however, a pause may help the commodity remain at these elevated prices.
Retail Spotlight
Retail tends to go long the things that are doing down and vice versa. AU, NU, USDCHF, and GU are majority long. These assets are mostly bearish on the EdgeFinder. Meanwhile, USDCAD, USOil, and UJ are majority short.
Smart Money Spotlight
The SMT reveals some compelling data for risk-off trading. It looks as though risk-on assets are getting sold while USD, JPY and oil are getting bought up. AU suggests an even further bearish stance on the pair. The bottom chart shows positional biases over time each week. AUDUSD's bias has further declined in the bearish direction for the past three weeks.
Fundamental Spotlight
The CLB shows more hikes in the future to reach a peak of a little over 5.4% interest. Over time, it seems that the dollar will become less restrictive than it is now. But in the next few quarters, it seems like the interest rate is going up.
PPI came out today, and it was not what investors expected. This is a major signal for the USD and any asset trading against it. Here are some more setups to end the week and looking ahead to next:
EdgeFinder Analysis
USOil is the strongest bullish reading on the EdgeFinder as of now that inflation is continuing to move higher and supply shortages are kicking in. Saudi Arabia and Russia have both said that they will be slowing production by over one million barrels a day.
PPI numbers came out higher this morning which is another indicator that the Fed may need to step in again. Core, however, remained unchanged but still suggests sticky prices overall. COT showed us a very clear bias to the long side last week.
Gold is continuing to move down on the 1D timeframe after the recent PPI news. It still looks like price is going to come down and test the $1880s before finding any clear level of support. In the meantime, we can expect choppier market price action going forward.
The 2 year yield is still pushing higher and maintaining itself around 5% which is concerningly high in regards to the historical levels of yields. If price does bounce for whatever reason, we could potentially find another resistance level around $1915.
UJ is also very bullish according to the EF's readings. COT is still majority long USD over the JPY, but we also saw that they started buying up the yen in last week's report. This pair moves very directly with the 2 year yield which we talk about a lot in this type of analysis.
Unemployment claims came in less than expected as well, further increasing the rate hike speculation. We'll have to see how price action performs today, but it is hard to tell with constant sentiment switching amongst traders.
Retail Spotlight
Retail sentiment is showing some strange numbers in the sense that several of these pairs are identical on the long and short side. NZDUSD, AUDUSD, USDCHF are all 76% long, while GBPUSD and EURUSD are 65% long.
Smart Money Spotlight
COT is showing a large increase in the net long changes on ZAR, JP225, JPY and USOil. To the short side is NZD, AUD, EUR and CAD. USOil got a large increase in longs added on a week-to-week basis. The bottom chart shows how positional bias has changed.
Fundamental Analysis
The latest data on USD's CPI and PPI in the picture above could raise alarm for the risk-on traders. Both indices have increased suggesting more resilience in the economy than anticipated.
Inflation numbers are expected to come out this week higher than previous reports for the year-over-year and month-over month rates. Core CPI is anticipated to stay where it's at. Here are the setups that could be worth considering in this hawkish environment.
EdgeFinder Analysis
EURUSD is now at a -10 on the EdgeFinder making it the strongest bearish reading right now. On a technical and fundamental level, the dollar sweeps the Euro in all categories. On the market sentiment side, COT has increased its long position while getting increasingly short EUR. Retail shows over 60% long this pair which suggests further downside as the EF scores opposite of retail positioning.
This month is historically bearish on a 10-year average, in fact, September is the most bearish month of the year for EU. Because US CPI is expected to rise, investors are taking this as somewhat hawkish news going in to Wednesday's report adding to further dollar strength.
Gold looks mixed on the recent inflation expectations. On the 1D timeframe, price has struggled to break higher above a falling trend line that has kept the selling pressure on this metal. There are still buyers trying to push price higher although it is met with rejection at the highs of candle interval.
Wednesday's CPI expectations are hawkish going into the news as m/m and y/y are expected to rise while the Core CPI is expected to remain unchanged. Higher inflation and stubborn Core expectations could mean dollar bullishness until the numbers come out.
USDCAD sits at a +8 "Very Bullish" reading. The trend reading and seasonality are starkly opposite EURUSD as September is historically the most bullish month for the pair. COT is also pointing towards a bullish lean on this pair as smart money gets rid of nearly 3% of their long positions on CAD.
The only category that CAD is beating USD in is inflation. If we see a rise in CPI m/m on USD Wednesday, this could mean an increasingly bullish reading for the pair as higher inflation will likely prompt the Fed to continue raising interest rates.
Retail Spotlight
Retail is still short the USD as they are favoring the risk-on pairs over the risk-off ones. Gold continues to be mixed, and GBPUSD is in the same boat. USO is mostly short regardless of the uptrend and higher inflation expectations going into Wednesday's report.
Smart Money Spotlight
The only clear sentiment biases are on USOil, AUD and ZAR. The bottom chart shows oil's net positioning over time which has increased in the past three weeks. Higher CPI expectations in the US are likely driving prices higher as well as diminishing production.
Fundamental Spotlight
Here are the inflation rates for the USD since January 2020. Due to the recent rise in inflation m/m, investors are now worried for further rate hikes in 2023. CPI has not risen since the early half of 2022, so seeing an uptick is mildly concerning for risk-on investors. And if we see another uptick on Wednesday, this will only add to the mounting risk-off sentiment favoring the dollar.
Unemployment claims came out this morning lower than expected. The initial reaction caused a strong dollar with falling stocks and gold prices. Here's a look at some dollar pairs from the EdgeFinder and their setups:
EdgeFinder Analysis
EU is still at a strong bearish reading on the EdgeFinder as price nears a support level. The euro dropped yesterday after PMI numbers came in lower than expected, suggesting a slowdown in the Euro-area economy. If price comes down to test the 1.066s, it could find support. There is also resistance around the falling trend line on the 1D timeframe.
Unemployment claims came out lower than expected, suggesting continued dollar strength. The combination of higher NFP last Friday and lower claims today is starting to clear up the fog around risk on or off sentiment.
Gold broke and closed under a support level on the 1D timeframe. After today's job numbers, gold might continue to push lower towards the lows in the $1880s. The trend is still bearish overall, and it will likely remain so unless the trend line can get broken.
Price is at a decision point right now, and if a candle breaks lower, it could come down to the lows again. Smart money is buying gold this week, however. Net positions on the non-commercial side are still pointing to the long side, so institutions could be buying the dip on this metal.
GBPUSD is now a -8 on the EdgeFinder, the strongest bearish reading today. Recently, the UK city of Birmingham declared bankruptcy as the rise in interest rates is causing more pain to the British economy. The BoE's main goal is still focused on inflation, and until then, the economy may have to suffer in the meantime.
Confusingly enough, smart money are both short the USD and GBP this week. Retail likes the pound more than the dollar right now, and this is likely due to the pair's performance over the past few months. September also happens to be the most bearish month on a 10 year average, and the trend reading points to lower levels as well.
Retail Spotlight
It's clear that retail is short the dollar and heavily long risk-on pairs. Gold is still looking mixed while oil is mostly short. One noticeable change is that USDCHF is no longer the most longed pair on the EF anymore, although price is now starting to move higher.
Smart Money Spotlight
Taking a look at positional sentiment on the Smart Money Tracker, GBPUSD is losing its bullish bias. Regardless of the two currencies being sold this week, it appears they're selling the pound at a quicker rate than the dollar.
Fundamental Spotlight
With UK and US's unemployment rising, it's still not enough to sway investors' opinions on their central banks. Expectations of higher interest rates over time are still very much at the forefront of their minds. Even if both banks decide not to hike, the rates will likely remain this high for some time.
Last week's NFP came out much higher than expected, turning sentiment to risk-off. Although the dollar is mixed right now, the dollar still looks bullish to the EdgeFinder. The 2-year yield suggests a stronger risk averse environment as stocks are also mixed in the midst of rising rates.
EdgeFinder Analysis
As we start the new month, UJ looks to be historically stronger throughout the rest of the year. Right now, this asset is scored at a +6 which is a very bullish reading mostly revolving around the trend and most fundamental metrics. Other than US unemployment, which is currently higher than Japan, all other categories are against the yen.
On top of this, we are getting some alarming indications from the US02Y (2 year bond rate) which is continuing to hold near the 5% mark and pushing higher on the day. The VIX - volatility measurement index - also opened over 9% higher today suggesting that the dollar could be finding some more strength.
While we're on the topic of higher rates and VIX prices, stocks fall on the day post-market open. The past couple weeks have been very mixed overall as price swings remain indecisive and do not form a clear pattern on the charts.
On the 4H timeframe, the index is moving back and forth, unable to clearly make a decision either way. It seems like the index is forming a falling channel with support near the $4490s. The recent candle is looking weak and might want to turn lower to test that support level.
EURUSD is one of the strongest bearish biases on the EdgeFinder still. September seems like the month where the dollar gets stronger overall, so USD might be the asset to consider to the long side. Historically, this pair has the most bearish month of the year on a 10 year average.
On the other hand, smart money actually got more short the USD this week while also shorting EUR more. As long as the 2 year yield continues to rise, it will be hard to push for a risk-on bias in the forex and indices markets. After the major fundamental news that came out last week, the yield curve will be one of the most important indicators to watch this week.
Retail Spotlight
Another good reason why USD is moving up is likely because retail is short dollar. AU, NU, USDCHF, and EU have the strongest long positions on retail. However, these pairs have been less and less optimistic as price moves lower for them. UJ, SPX and USDCAD are the strongest sell positions, however, these pairs are the pairs moving higher.
Smart Money Spotlight
COT is showing mixed signals, however. Other than the metals market, everything else seems mixed or bearish. Smart money is getting more short the dollar, euro, and indices. AU is getting more bearish over the past couple weeks as the positional bias shows a negative 21% bearish signal.
Fundamental Bias
The risk gauge is pointing to a more risk off environment as the monthly and daily meters suggests stronger USD, JPY and CHF.
