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Key Economic News on June 14th

Most weekdays offer the release of a flurry of economic data that can influence price action in the financial markets. Due to the surplus of information available, it can be difficult to parse and locate which indicators are most helpful in terms of fundamental and sentiment analysis. Here, we consider key economic news on June 14th, which I will be keeping in mind for identifying fundamental catalysts, preparing for future volatility, and devising trade setups.

GBP: Another Day of Bad News

The United Kingdom received disappointing new unemployment and employee earnings data from the Office for National Statistics this morning at 2 am Eastern Time. The UK’s Average Earnings Index failed to meet forecasts, while the unemployment rate ticked up by an unexpected 0.1% as more workers filed for unemployment benefits than anticipated. This comes on the heels of yesterday's pessimistic news for the UK, including a shocking month-over-month GDP contraction and a worse trade deficit than what was forecast.

Things are not looking up for GBP; the UK’s economy is clearly not performing well, yet the Bank of England (BoE) is forced to attempt to reckon with high inflation numbers while not causing a recession. This is holistically bearish for GBP, with a mild 25 bps rate hike and Monetary Policy Summary from the BoE expected on Thursday at 7 am Eastern Time. Traders could look to continue shorting GBP beforehand, wait for Thursday's fundamental catalyst(s), or perhaps attempt to buy GBP/JPY as the pair may be erroneously oversold on GBP disappointment.

Other News

Month-over-month German CPI data came in at precisely what was forecast, 0.9%; however, economic sentiment in Europe came in bleaker than expected today according to the ZEW survey(s). US Producer Price Index (PPI) numbers, another metric for inflation, also met forecasts at 0.8% month-over-month, though Core PPI (which excludes food and energy prices) failed to meet expectations by 0.1%. However, this is secondary for USD as tomorrow’s FOMC news remains the focus. China’s year-over-year retail sales and industrial production numbers are also scheduled to be released tonight at 10 pm Eastern Time, along with their unemployment rate.

Key Takeaways

This morning saw demand for USD rapidly pick up steam as US inflation data came in hotter than expected. Month-over-month CPI had been forecast to rise by 0.7% in May; at 8:30 am Eastern Time, the Bureau of Labor Statistics revealed that it had increased by 1%, or 8.6% year-over-year, a forty-year high. Likewise, Core CPI (which excludes food and energy prices) was forecast to rise by 0.5% month-over-month, instead hitting 0.6%. On this news, the DXY is up 0.8% and has risen over the 104 level intraday, as EURUSD is down 1% and the S&P 500 is down nearly 3%. With this context in mind, let’s discuss 3 ways to capitalize on inflation now.

Trade Major Pairs

3 Ways to Capitalize on Inflation Now

This CPI news is a huge fundamental catalyst for USD pairs since it verifies that the US economy is indeed still overheating, validating further interest rate hikes by the Federal Reserve. This is very bullish for USD, which makes buying the USD against other currencies even more appealing. If traders are searching for optimal USD pairs to take positions in, a good place to start is by locating pairs where analysis leans in USD’s favor to the greatest degree possible.

Some such options include a) shorting GBPUSD and EURUSD, which receive -7 (‘strong sell’) and -5 (‘sell’) signals, respectively, from the EdgeFinder, and b) going long on USDJPY, which receives a 4 (‘buy’) EdgeFinder signal. Because USD experienced so much buying pressure this morning, conservative traders may want to find an opportune point of entry by conducting technical analysis, e.g., waiting for a pullback and retest of key support/resistance.

Buy XAUUSD

3 Ways to Capitalize on Inflation Now

Though admittedly a controversial opinion, I am waiting for an optimal point of entry to purchase gold against USD. XAUUSD experienced quite the selloff this morning before a startling recovery, jumping from a low of 1825 to hovering around 1855 at the time of writing this. This jump was seemingly prompted by finding support around the 1830 level, a clear zone of support on a 1-hour timeframe.

I interpret fundamentals being bullish for XAUUSD due to demand for the precious metal in several different industries and its historical status as a safe haven investment in times of economic crisis. There have been periods where gold’s rise in value does not correlate with USD depreciating in value, which is helpful to consider in cases like these. According to the latest COT data, institutional traders are similarly long on both USD (76%) and gold (73.56%). I am planning to purchase XAUUSD if price action retests the trendline depicted on the 1-day timeframe above, though this opportunity may not come if demand continues to grow quickly.

Invest in the Stock Market

3 Ways to Capitalize on Inflation Now

Though it may seem strange in the face of persisting hyperinflation and potential for recession, economic downturns and stock selloffs do present myriad buying opportunities for long-term investors. If you are not planning on retiring for decades, you can utilize dips in the stock market and indices to build wealth over time, assuming you are willing to sacrifice immediate results. For example, when the Dow plummets over 600 points like it has today, investors can seize these events as opportunities for cheap purchases that will yield returns years down the road.

If your investment portfolio keeps crashing in the meantime, this does not have to be discouraging since they are merely unrealized losses; they will likely grow in value through the decades if you are invested in index ETFs and other trustworthy funds. Any further selloffs present even more opportunities for regular, small purchases. (However, investing in individual stocks is a completely different story, and I personally believe that even the most skilled retail investors are not sufficiently equipped to handle the inherent risks involved.)

Key Takeaways

While there are many currency pairs worth buying and selling in the foreign exchange markets, many pairs worth watching fly under the radar of retail traders, particularly minor pairs. The EdgeFinder, an A1 Trading tool for traders aiming to holistically bolster their analysis skills, is helpful for identifying such opportunities for trade setups. Today we will look at which three pairs the EdgeFinder currently evaluates as most worth selling, and why. We will employ fundamental, technical, and sentiment analysis as we explore 3 pairs worth selling now.

GBP/CAD

3 Pairs Worth Selling Now

In terms of fundamentals, CAD has a narrow, but important, lead over GBP. While the UK has an unemployment rate 1.5% lower than Canada’s, the Bank of England has been slower to respond to their inflation threat than the Bank of Canada, lagging 0.5% behind regarding benchmark interest rates. Q1 GDP growth in both countries has been identical, percentagewise. In terms of technical analysis, we have seen a steep downtrend for over three months, plummeting from nearly 1.74 to 1.58, with 1.58 being a historic support zone. Considering the seasonality bias in CAD’s favor (historically performing well this month), we may well see a breakout to the downside, followed by a retest of 1.58 as resistance and continued bearish momentum. Regarding sentiment analysis, double the percentage of institutional traders long on GBP are long on CAD, and retail traders are strongly bullish on the pair, both bearish signals. Thus, this pair has earned a -6 rating from the EdgeFinder, a strong sell signal.

GBP/NZD

3 Pairs Worth Selling Now

Regarding fundamentals, NZD is far ahead of GBP. New Zealand has an unemployment rate 0.5% lower than the UK’s, and the Bank of England has been far slower to respond to their inflation threat than New Zealand’s Reserve Bank, leaving their benchmark interest rate a full 1% lower. New Zealand’s Q1 GDP growth was a whopping 2.2% greater than the UK’s as well. In terms of technical analysis, we are seeing a retest of resistance in the form of a steep downtrend since February 2022, with higher lows being formed as well. Considering the seasonality bias in NZD’s favor, we may well see a bearish continuation, making this retest a potential selling opportunity. In terms of sentiment analysis, retail traders are fairly divided on the pair, while institutional traders are similarly shorting both currencies, offering little information on the pair. Taken altogether, GBP/NZD has earned a -7 rating from the EdgeFinder, a strong sell signal.

EUR/CAD

3 Pairs Worth Selling Now

Regarding fundamentals, CAD is far sturdier than EUR. Canada’s unemployment rate is 1.6% lower than in the Euro Area, and the Bank of Canada has been far more aggressive than the European Central Bank regarding rate hikes, with their benchmark interest rate currently 1.5% higher. (This may change as the ECB is contemplating a more hawkish rate hike strategy.) Canada’s Q1 GDP growth was approximately 0.5% greater than the Euro Area’s as well. In terms of technical analysis, there has been a strong downtrend since summer of 2020, with the 1.34 support level recently being retested rapidly. Although seasonality bias weighs in EUR’s favor, the pair appears ripe for a breakout to the downside. In terms of sentiment analysis, institutional traders are somewhat divided on the pair, while retail traders are bullish, a bearish signal. Taken altogether, this pair has earned a -6 rating from the EdgeFinder, a strong sell signal.

Key Takeaways

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