April 24, 2023

How We're Trading Into CPI/GDP This Week

Frank Cabibi

We have some important economic news coming out this week for a couple currencies. AUD, CAD and EUR are set to report CPI numbers. USD and CAD will report GDP as well. Here is what we're looking at in this week of trading.

EdgeFinder Analysis

USDJPY is ranked at a +5 buy on the EdgeFinder going into this week. Despite recent price consolidation, the pair is maintaining the same buy score. Retail remains mixed on UJ, however smart money is still largely bullish USD. If retail switches from mixed to Yen-leaning, we could see a strong buy score from the EdgeFinder.

The pair is up +0.21% on the day as stocks and the dollar index dipped. Yen weakness persists across the board as a trend to JPY bearishness continues. April is historically the most bullish month for UJ in the first half of the year on the 10-year average.

EURJPY is also one of the EdgeFinder's strongest buys currently. At a +5, the pair has seen a steep run to the upside within the past month of trading. Price came up to retest the highs around 148.430s before pulling back. Upward momentum does look strong enough to continue the trend, so any pullback opportunity looks promising for this pair.

Support lies around 147.800 and the rising trend line in the low 147s. EUR business climate rose this morning slightly higher than expected. German and Spanish CPI comes out this Friday which is expected to come in hotter than the previous number. If we see actual come in higher than the forecasts, it may spark some bearishness on the pair. However, if expectations are met, the trend may likely continue.

The Kiwi remains bearish on the EdgeFinder readings. This pair is now a -5 sell as we wrap up this trading month. We are expected to see a serious decline in performance in some of the most bearish months of the year. On the 10 and 5-year averages, seasonality points to a lower move.

Smart Money is getting increasingly bullish on the Swiss Franc while retail is 98% long this pair. COT is one of the only metrics that read in NZD's favor. Should institutional sentiment flip on Swiss, we'd be looking at a strong sell.

Retail Spotlight

We're getting some mixed signals from the crowd, but at least we can still be confident in going against their sentiment. When incorporating retail into analysis, we like to look for strong biases. If retail is heavily one way, they are probably trading against the trend.

Smart Money is showing signs of changing sentiment. Platinum is now the third most bought asset with a positive change in long contracts. CAD is the second most shorted asset, but last week's report suggests a potential turnaround. Institutions got significantly decreased the number of short positions as well as picked up some longs. Meanwhile, the S&P could be running out of steam as investors keep moving out of their long positions placing the index as the third most shorted asset.

Fundamental Spotlight

Interesting comparison in GDP growth rate between 2021 and now. Although we are still only looking at Q1's data for 2023, it is not off to a great start if we are to see similar numbers like that of 2021. USD leads the way in most growth. NZD's economy is contracting.

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