A1 Trading Company

June 5, 2023

Smart Money to Spike Gold

Frank Cabibi

Over the past week, several news events paved the way of sentiment on monetary policy. Through the forest of mixed uncertainty, we can find the clearing of one asset that looks ready to take off. Gold has come back to a critical level, and it is up to smart money what happens next.

EdgeFinder Analysis

USDJPY is one of the strong buys on the EdgeFinder. It's important to note that the only categories Japan has US beat in is only inflation and unemployment. Japan's inflation and UE rates will likely stay low as the BOJ is solely focused on economic expansion.

Seasonality and trend reading are hand in hand here, retail and COT are both pointing towards a higher dollar, Fed remains less dovish than BOJ, lastly, robust jobs growth and GDP show stronger economy anyways.

This is now the most longed pair on the Smart Money Tracker on the EdgeFinder. Its score remains neutral still likely due to trend reading and retail sentiment. This is one of the few times where the crowd and institutions are in agreement. Hovering at +2, the metal may see some upside this week as the week starts off positive.

On the 1D timeframe, the pair is testing that long term trend line once again. Smart money has been buying into this pair for the past couple weeks, yet price has been pushed further downward. If today's candle can end with a hammer formation and show pressure to the upside, we might get to see another chance at $2000 again.

Despite the messy price action, the fundamentals are clear on this pair. The EdgeFinder has this pair as one of the strongest sells. And this week is even more of a reinforcement to the short bias. BOC will have another rate statement this Wednesday where they will discuss whether or not to keep hiking or sit at 4.5%. Last month's CPI ticked up from 4.3% to 4.4% suggesting that the bank may need to continue to hike.

Retail is largely long this pair, and so is COT. However, if we look at week-to-week activity, we'd notice a change in institutional activity that we will discuss in the SMT spotlight. COT data is the only category in which EUR has CAD currently beat, and is the only thing keeping the pair from a -8.

Retail Spotlight

Retail is terribly mixed on the USD that is probably not the best reference to use in analysis. In some instances, they agree with smart money which adds to the confusion. So, if anyone is looking to trade based on retail, the most bias pairs might be your best bet (USDCAD and USDJPY).

Smart Money Spotlight

The net long bias on gold is showing growth from last week even though smart money is increasing their long positions on both USD and the metal. Meanwhile, the SPX500 and NAS100 saw pretty clear short sentiment from last week's report. Euro is increasingly shorter this week while CAD picked up a substantial amount of longs.

Fundamental Spotlight

Although CAD's and JPY's CPI is not as high as the US, we can see a most recent uptick in the rates for both countries while the US continues to decline. However, there is a difference between the monetary policies of both BOJ and BOC: Canada is considerably more hawkish than Japan. Having that said, speculation around a CAD rate hike this Wednesday is still in the air. Even if BOC decides to stay at 4.5%, they will likely stay there for an extended period of time so inflation can come down slowly.

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