While today is relatively uneventful in terms of major economic news around the world, this will not be the case for long. There is a chance that the forex market could witness a Kiwi Dollar spike tomorrow due to the Reserve Bank of New Zealand (RBNZ) announcing their latest interest rate hike at 8 pm ET. With market forecasts currently expecting the Official Cash Rate to increase by 75 basis points, hitting 4.25% (surpassing the United States’ Federal Funds Rate), all eyes will be on NZD to see if it retains its bullish momentum. With the RBNZ set to issue a Monetary Policy Statement in conjunction with their rate hike, and a press conference to follow an hour later at 9 pm ET, how the markets interpret the RBNZ’s commentary will help decide the fate of the New Zealand Dollar.
Three Pairs to Watch
The EdgeFinder, A1 Trading’s market scanner, currently holds NZD in high esteem: all the pairs with the strongest buy and sell signals are NZD pairs, with biases that corroborate Kiwi Dollar bullishness. Three of these pairs are listed below with their respective ratings, biases, and corresponding charts.
1) GBP/NZD - Receives a ‘-9’ Rating, or a ‘Strong Sell’ Signal
2) AUD/NZD - Receives a ‘-9’ Rating, or a ‘Strong Sell’ Signal
3) NZD/JPY - Receives a ‘5’ Rating, or a ‘Buy’ Signal
This morning at 2 am Eastern Time, the Office for National Statistics reported the latest monthly round of Consumer Price Index (CPI) and Core CPI increases within the United Kingdom’s economy. Annual CPI, which had been forecasted to hit 10.7%, instead jumped by an astonishing 11.1%, making for another multidecade high; annual Core CPI also surpassed expectations, reaching 6.5% instead of the anticipated 6.4%. Because higher-than-expected inflation numbers tend to prompt central banks to raise interest rates to cool their respective economy in response, the Pound rose on the news accordingly, with traders welcoming the bullish indicator. However, it seems quite plausible that the UK CPI data mislead markets today, because these high figures are not due to traditional economic overheating.
A more fitting target for the blame is the slew of supply side issues stemming from the wartime energy crisis and clunky access to import commodities, driving up food and gas prices. This is why Core CPI in the UK has thus far only increased by a little over half that of CPI, and why the UK’s GDP is contracting, not expanding. These structural issues cannot be resolved merely by a central bank restricting demand vis-à-vis interest rate hikes; rather, either some combination of domestic production and trade must be reconfigured, or many of these tragic conditions must simply be endured, even in the form of stagflation. Whatever comes to pass, this particular kind of high inflation is ominous, and may perhaps be more appropriately filed as bearish for GBP upon a closer look.
Two Potential Pairs to Sell
For those who are looking for opportunities to short the Pound, the following two pairs are viewed favorably for GBP bears by the EdgeFinder, A1 Trading’s handy market scanner. They are listed below with their respective ratings, signals/biases, and corresponding charts. GBP/NZD is perhaps especially worth watching, as the Kiwi Dollar displays impressive fundamentals.
1) GBP/NZD (Earns a Score of -8, or a ‘Strong Sell’ Signal)
2) GBP/CHF (Earns a Score of -3, or a ‘Sell’ Signal)
As we wait for major economic news releases this week (such as monetary policy meeting minutes from the Reserve Bank of Australia tonight at 7:30 pm ET, United States Producer Price Index numbers tomorrow at 8:30 am ET, and Consumer Price Index updates from the UK on Wednesday at 2 am ET), it can be helpful to consider what pairs the Edgefinder already signals to be particularly worth watching. With this in mind, here are the EdgeFinder’s current 3 strongest pairs to buy this week, listed below with their respective ratings, signals/biases, and corresponding charts. Additional comments on fundamentals and technical analysis will also be provided.
1) CHF/JPY (Receives a 5, or ‘Buy’ Signal)
2) USD/CAD (Receives a 5, or ‘Buy’ Signal)
3) NZD/CAD (Receives a 4, or ‘Buy’ Signal)
One of the main reasons why the EdgeFinder, A1 Trading’s market scanner, is so helpful is because of its ability to convey nuance when presenting analysis. For example, one currency pair may have strong bullish fundamentals while institutional sentiment somehow remains quite bearish, and the EdgeFinder is able to present this data concomitantly. This makes it even more compelling when the market scanner issues ‘strong’ buy or sell signals, indicating that a significant combination of fundamental, sentiment, and technical analysis have aligned for a pair. As of today, two new minor pairs have earned ‘strong sell’ signals; they share the same quote currency, and this strong currency may surprise you. It is the Kiwi Dollar, which has only recently been gaining bullish steam in the forex market. Boasting hot labor markets, strong GDP growth, high inflation, and a relatively hawkish central bank to match, New Zealand’s economy makes NZD seem quite promising. Institutional traders are only just now beginning to affirm this, with over 10% more of them going long on NZD than in the previous week.
Two Potential Pairs to Sell
The following two pairs are rated extremely favorably for bears, and for those planning to go long on NZD. They are listed below with their respective EdgeFinder ratings, signals/biases, and corresponding charts.
1) AUD/NZD (Earns a -9, or ‘Strong Sell’ Signal)
2) GBP/NZD (Earns a -9, or ‘Strong Sell’ Signal)
There was a big Bank of Canada upset this morning: at 10 am Eastern Time, the Bank of Canada (BoC) issued their latest Monetary Policy Report and announced their new Overnight Rate, a key interest rate. While another 75 basis point rate hike had been forecast, the hike was instead a mere 50 basis points, a shocking move away from the BoC hawkishness displayed earlier this year. This is a bearish development for the Canadian Dollar and appears to mark a distinct tonal shift from the BoC as recession concerns mount for the recently aggressive central bank. Though CAD’s status as a commodity currency may permit rising oil prices to temper any subsequent selloffs, the case for CAD bearishness in terms of fundamentals is now more compelling in light of the BoC’s now-lukewarm tightening efforts.
Top Pairs to Buy
According to the EdgeFinder, A1 Trading’s market scanner, the following two pairs are designated as optimal to watch for those interested in shorting CAD. They are listed below with their respective ratings, signals/biases, and corresponding charts.
1) NZD/CAD (Receives a 5, or ‘Buy’ Signal)
2) USD/CAD (Receives a 3, or ‘Buy’ Signal)
Tonight at 8:30 pm Eastern Time, the Australian Bureau of Statistics will release new Aussie CPI data tonight, providing two key measurements of inflation. Quarter-over-quarter CPI, as well as quarter-over-quarter ‘Trimmed Mean’ CPI (which excludes the 30% most volatile items), will be made available to the public. CPI is forecast to increase by 1.6% and Trimmed Mean CPI by 1.5%; if the real numbers exceed these expectations, AUD could experience further bullish momentum following a multiyear downtrend. However, if the reports fail to meet market forecasts, AUD may see a continuation of these longform downtrends across pairs. You can check on the results here.
Thus far, Australia’s annual inflation (currently sitting at 6.1%) has lagged behind that of many other countries, giving the Reserve Bank of Australia little reason to indulge in comparable hawkishness. With over 67% of institutional traders shorting the Australian Dollar, both fundamentals and sentiment currently weigh against the currency, making the likelihood of the latest Australian CPI data becoming a bearish fundamental catalyst for AUD quite plausible.
Best Pairs to Watch
For those interested in shorting the Australian Dollar, the following two pairs are viewed favorably for AUD bears by the EdgeFinder, A1 Trading’s market scanner. They are listed below with their respective ratings, signals/biases, and corresponding charts.
1) AUD/NZD (Receives a -6, or ‘Strong Sell’ Signal)
2) AUD/USD (Receives a -4, or ‘Sell’ Signal)
The next Prime Minister of the United Kingdom has been decided: Rishi Sunak, former Chancellor of the Exchequer in Boris Johnson’s administration, has won the ruling Conservative Party’s leadership election by default. Having previously sounded the alarm against Liz Truss’ debt-financed tax cuts while running against her in the last leadership race, his efforts to avoid such fiscal stimulus amid historic inflation rates proved prescient. The Pound jumped in value accordingly upon the news of his win; financial markets appear to be hoping that with the new UK PM, new fundamentals will follow.
Is GBP Bearish Momentum Over?
It seems plausible that GBP could experience increased buying pressure over the short term, particularly in response to a PM that veers away from money-printing during high inflation. However, the core problems plaguing the Pound and the British economy remain regardless: a timidly hawkish Bank of England, the looming energy crisis, messy trade, and impending stagflation are not things that a new PM can fix single-handedly. In terms of fundamentals, it currently seems more likely that the GBP bearish trend will ultimately continue, perhaps even falling below parity with USD.
Best Pairs to Watch
For those interested in shorting the Pound, there are no pairs currently ranked favorably for GBP bears by the EdgeFinder, A1 Trading’s handy market scanner; this is fitting, considering the likelihood of GBP finding short-term bullishness. However, if GBP bearishness continues upon encountering fresh resistance, the following two neutral pairs currently lean less in the Pound’s favor, which traders can consider for the future. They are listed below with their respective ratings, signals/biases, and corresponding charts.
1) GBP/USD (Receives a -2, or ‘Neutral’ Signal)
2) GBP/NZD (Receives a -2, or ‘Neutral’ Signal)
There is a near endless cycle of global economic news worth focusing on. Recent noteworthy stories include the complete abandonment of UK PM Truss’ ill-timed signature tax cuts, as well as the US Dollar Index briefly falling during better-than-expected US corporate earnings. Just this morning, both UK and Canadian CPI data came in hotter than what was forecast. However, one currency continues to stand out as particularly worth watching, despite few policy updates or other fundamental catalysts this week: the Japanese Yen. With Japan’s economy in a comfortable state of low unemployment and higher consumer spending, yet little dangerous overheating, the Bank of Japan continues its ultraloose monetary policy, voluntarily sacrificing JPY’s forex value for economic prosperity. With the Yen thus continuing its fall to multidecade lows, this bearish momentum shows no signs of stopping, potentially making JPY the best currency to short.
Best Pairs to Buy
According to the EdgeFinder, A1 Trading’s market scanner that assists traders by consolidating and presenting key market analysis, the following three pairs are rated favorably for those shorting JPY. They are listed below with their respective ratings, signals/biases, and corresponding charts.
Regarding technical analysis, each pair has a clear, strong uptrend. As conveyed in the EdgeFinder charts, despite Japan's fantastic economic performance, institutional bearishness (see 'COT data' in the Sentiment category) on the Yen, trend reading, and interest rate divergence are recurring bullish themes across pairs.
1) USD/JPY (Receives a 4, or ‘Buy’ Signal)
2) CHF/JPY (Receives a 4, or ‘Buy’ Signal)
3) NZD/JPY (Receives a 3, or ‘Buy’ Signal)
As many traders and analysts grapple with today’s big economic news (namely, the UK’s disappointing 0.3% month-over-month contraction in GDP, the US’ surprise 0.4% jump in month-over-month PPI, and the FOMC meeting minutes set to release at 2 pm), many are similarly preparing for tomorrow's new round of CPI data in the US. Scheduled for reporting by the Bureau of Labor Statistics at 8:30 am on Thursday, October 13th, the public will learn how prices for US consumers changed in September. Because CPI is a proxy for inflation, this news will likely cause a great deal of volatility across financial markets, potentially offering another fundamental catalyst for USD bulls if September’s hot jump in PPI is any indication. While major pairs like EUR/USD, GBP/USD, and USD/JPY are thus still ripe for trading, it can also be worthwhile to explore some less frequently traded pairs as well. Here are the A1 EdgeFinder’s top 4 minor pairs to trade, along with some additional analysis for each.
1) CHF/JPY (Earns a 3, or ‘Buy’ Rating)
2) EUR/CHF (Earns a 3, or ‘Buy’ Rating)
3) AUD/JPY (Earns a -3, or ‘Sell’ Rating)
4) AUD/NZD (Earns a -3, or ‘Sell’ Rating)
Statistics Canada released a surprising new batch of inflation data this morning: month-over-month CPI failed to meet market forecasts, declining by 0.3% instead of the anticipated 0.1%. Rather than being an outlier, the other measurements of CPI mostly followed suit, as both year-over-year Trimmed CPI and Median CPI likewise failed to meet expectations. Trimmed CPI’s poor performance, clocking in at a 5.2% increase year-over-year instead of the expected 5.5%, could be interpreted as particularly significant in that it excludes the 40% most volatile prices. This may theoretically set CAD fundamentals apart from USD, in that the Federal Reserve has incentive to keep hiking interest rates due to stubborn core inflation, while the Bank of Canada no longer does. Regardless of your overall Canadian Dollar bias, this is shocking CAD inflation news.
Best Pairs to Trade
While there are multiple ways to take this news, I personally have two takeaways: 1) USD/CAD bullishness now seems more compelling in light of the growing disparity between Canada’s inflation problem and the US’ inflation problem, and 2) the market reaction to this news could present discounted opportunities to buy CAD against less promising currencies. These readings are consistent with current EdgeFinder signals as well, as can be seen with the following pairs:
1) USD/CAD (Receives a 3, or ‘Buy’ Signal)
Price action has just hit a historic resistance zone, with Keltner Channels also indicating overbought conditions. Conservative traders may want to wait for a more optimal buying opportunity, though there may be some breathing room left before hitting the upper trendline and top of this resistance zone.
2) GBP/CAD (Receives a -6, or ‘Strong Sell’ Signal)
Price action is currently retesting the depicted zone as resistance and could potentially serve as an optimal selling point.
3) NZD/CAD (Receives a -4, or ‘Sell’ Signal)
Despite the bearish CAD news and support at 0.79, price action has still been bearish for this pair today. There is also ample room to potentially continue selling off before touching support from the lower trendline.