May 22, 2023

Kiwi In Need of Another Rate Hike

Frank Cabibi

As we trade into a broad news week covering the economic status of multiple countries, there are several scenarios we should consider. Although it is impossible to predict the future, we can at least prepare for the news events set to come this week for kiwi, dollar and the pound.

EdgeFinder Analysis

GBPJPY still maintains its buy score of +3. The factors keeping this pair from being a strong buy are purely fundamental. The UK has a terribly high inflation rate, especially in comparison to that of Japan. That coupled with a lower growth in GDP and higher unemployment, it seems almost pointless to be long.

However, the EdgeFinder likes this pair to the long side. Yes, the score is heavily influenced by technicals right now, but CPI news this week could cause another run higher. The y/y rate is expected to beat expectations and come down below double digit inflation. Seeing the report meet expectations, GBP will likely gain more investor interest.

Looking at another +3 rating, NZDCAD won't seem to quit testing significant resistance on the 1D timeframe. Price is bidding up to resistance around a long term falling trend line and is trying to close above. It looks like the pair is in a flag pattern and waiting to break back to the upside.

One thing that could cause such a breakout is tomorrow's RBNZ decision on interest rates. Expectations are that the bank will raise the discount rate by another 25 basis points. With that in mind, investors might be trying to trade price higher as we go into this event.

If you want to trade a clean sweep, AU is the one for you. The dollar has AUD wiped in every category of fundamentals and technicals. Even with this strong bias to the downside, the pair has not really moved in the past couple months. It is more so a sideways motion rather than down and that is likely due to a heavy level of support propping the pair up.

USD has a handful of events coming up this week that carry copious opportunities for traders in this market. Reasons for the pair to break under to the trend line to the downside could be a meet on GDP, as-expected jobless claims, and PCE meet. Consumption has surprisingly stayed the same for the last two months but expectations are dropping. If PCE sticks or rises, it could look bullish for the dollar.

Retail Spotlight

With a full market view of major and minor pairs, some factors can be obviously pointed out. Investors are harshly short NZD as we go into another pivotal rate decision. The crowd also seems to be majority bullish yen regardless of COT and the BOJ's incredible dovishness.

Smart Money Spotlight

COT uncovers a different story regarding sentiment. JPY is still the most shorted asset on this list, followed by SPX and CAD. The charts below represent AUDUSD which is maintaining a heavily bearish bias week-to-week.

Fundamental Spotlight

Two very different monetary policies coming from Japan and UK which is causing direction in inflation. With a focus on economic growth, CPI is rising in Japan. Meanwhile, the US and UK have set their sights clear on fighting inflation. On this chart, you can visually tell which countries are raising rates.

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