April 10, 2023

Time To Buy Commodities?

Frank Cabibi

For some consecutive weeks, smart money has shown an increased level of interest on commodities like gold and oil. In a time where market uncertainty spikes and economic news is mixed, safety may be sought in these sorts of assets. Here are some analysis on commodities and the currencies that behave similarly to those assets.

EdgeFinder Analysis

EURJPY is a buy at +5. EUR is beating JPY in all categories except inflation, unemployment and GDP growth. This pair tends to be bullish in the month of April as retail goes short. Smart money is heavily interested in euro while also heavily short the yen.

EJ test a resistance level again around the 144.200s and is showing strong momentum to the upside. The Yen looks weaker as of late due to the COT reports making it the most shorted currency on the market. Price action may lead to a test around the double top at 145.600s. Because this is such a key level, and the pair has a handful of attempts here, we may see a break to higher on euro strength.

Kiwi-CAD looks to have momentum to the downside on the 1D timeframe. Price has been in a downward channel for several months and may continue its move lower. It looks like price may complete the move to the bottom of the flag pattern around 0.82900s. CAD has not been very strong, but COT has a heavy interest in oil which is by default, bullish for Canada’s currency.

The pair is now at a -3 sell rating on the EdgeFinder. This is predominately due to technical factors such as trend reading, seasonality, retail and smart money sentiment. Retail could be long Kiwi as a result of higher interest from the RBNZ, but it is still not a healthier currency or economy than Canada.

SPX touches the top of a falling trend line last week and could not break higher. It looked like there would be a second test before today’s candle shook price lower. COT shows a decrease in long activity overall. In the mid term, the index could come down to test the bottom of the wedge which is around $3900s.

At +3 on the EdgeFinder, stocks are looking at a positive growth month for the month of April. A reason why this could be a momentum play is the fact that smart money is not as interested in the stock market right now.

Retail Spotlight

The crowd is between mixed and bearish sentiment around commodities and indices. GER30 (Germany) being the most bearish among retail, and JP225 (Japan) being the most bullish. This week is going to have lots of economic data which will likely cause more mixed sentiment and range-bound assets.

Smart Money Spotlight

Our Smart Money Tracker measures change in COT activity each week. A pattern we have been noticing is that institutions are staying long in JP225, USOil, and gold. At the same time, they remain bearish on assets like JPY, CAD and SPX/NAS. When big money buys into a falling asset, it's a sign that price is getting ready to shift as we have seen in the Japanese stock market and oil.

Fundamental Spotlight

Of the three risk off currencies, Swiss's unemployment rate remains the healthiest. The US continues to struggle with unemployment in comparison even though the rate came down last week from 3.6%. One thing investors are concerned about is whether or not the Fed will decide to take another rate hike after NFP beat expectations and drew UE rates down a tad.

It will be important to monitor US unemployment as well as CPI this upcoming Wednesday for future Fed predictions.

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