A1 Trading Company

May 8, 2023

Trading Into Treacherous News

Frank Cabibi

The majors are about to experience another wild week of trading. With key inflation data in the US, bank rate decisions across the pond in the UK, and then inflation expectations in New Zealand, investors prepare for a treacherous news week. Here is some other notable events happening in the global markets:

EdgeFinder Analysis

EURJPY is still one of the EdgeFinder's top buy ratings for the week. At +6, the euro beats the yen in almost every category except inflation and unemployment. The Euro-area likely struggles more with inflation due to a more expansive economy than Japan who's central bank is trying to stimulate growth rather than focus on the yen's strength.

More promising news came from COT this week which showed an increase in long positions in the euro. Meanwhile, retail is net short this pair as it looks to be a reversal attempt. Although price is pulling back, smart money does not want to let go of the euro, so price is likely going to attempt a bounce.

Gold on the rise today after a stark sell off in Friday's session. COT showed a confident level in growth in long positions on the Smart Money Tracker after the regionals rebounded from the banking crisis. What looked to be a bearish case for the metal at first is now looking more so like a dip-buying opportunity.

Gold is now the most heavily bought asset by institutions. The metal broke above the $2020s on the 4H and 1D timeframe which suggests bullish pressure going into CPI. Traders could be looking for a retest on the highs of $2060.

GBPJPY is still a +5 on the EdgeFinder as we go into a BOE bank rate decision. Forecasts have put down another expected hike of 25 basis points on Thursday in hopes of driving down the double digit inflation crippling the pound's strength.

Other than inflation and unemployment, GBP has the advantage with a hawkish BOE and expanding economy. The two trend readings point toward more momentum to the upside as the 10-year average seasonality shows historical gains.

Retail Spotlight

The crowd looks heavily biased towards the euro and one pound cross this week. To the short side, it appears that retail is looking to yen strength as GBPJPY, CADJPY, NZDJPY and AUDJPY are at the bottom of the list. Commodities are mixed; oil is mostly long while the gold market is only 40% long.

Smart Money Tracker

Here's a new feature on the Smart Money Tracker page of the EdgeFinder which shows week-to-week activity from institutions. So, you will not only see this week's change in long or short contracts for the current week, but you can also see what they are up to over time. The yellow bars show a net change in long and short contracts to find the net bias. For example, this week's currency pair bias for gold is 13%, or net long of 13%.

Fundamental Spotlight

Something that was mentioned in the livestream today was global inflation. Most notably, inflation in the US, UK, Europe and Japan. UK has the highest levels as well as a stubborn rate path on a 2-and-a-half year chart. With this in mind, it was unanimously agreed that the BOE will need to raise rates this week to help quell the 10% inflation rate.

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