A1 Trading Company

August 7, 2023

China To Start Out With Inflation News

Frank Cabibi

Tomorrow evening, China will release their CPI numbers. This will be soon followed by New Zealand and the US. These countries will leave a large impact on several assets in the market. Here are a few we are looking at:

EdgeFinder Analysis

With seasonality and trend readings on its side, USDCAD is now the strongest bullish pair reading on the EdgeFinder. For the last four months, this pair has historically struggled, but it is now starting off the month of August with a gain of over 1%.

USD CPI and Core CPI is expected to remain unchanged from last month at 0.2%. If these rates stay where they are at, it may suggest that the Fed needs to do more to monetary policy than expected. This could be also boosting confidence in the dollar over the CAD for now.

USOil is sitting at a bullish reading, but there are a few factors to consider as we go in to China's inflation on Tuesday. Year-over-year, prices are expected to have declined into the negatives. Usually, lower inflation points to lower oil prices.

On the 1D timeframe, price is up against a double top and is hesitating to push higher. If price pulls back on a potential lower CPI, we could see price test support around 78.78 and 77.36. However, if price breaks higher, we could watch it test into the 85s.

AU is now the EF's strongest bearish reading. As we come off the month of July, sentiment has essentially flipped on the seasonality side. The trend projection is lower as well. Retail is mostly long while smart money is leaning more towards the USD.

At a -6, the pair is losing to the USD in almost every category except unemployment and inflation. Although Australia suffers from double the rate of inflation, but GDP growth and interest rate are weaker than the US's overall.

Retail Spotlight

Retail is mixed on the dollar, slightly long gold, but heavily short oil. The SPX500, US30 and GER30 remain short. The strongest biases are US30 to the short side and USDCHF to the long side.

Smart Money Spotlight

Oil might be the strongest bullish bias according to COT reports. As the number of long contracts rise and short contracts fall, the positional bias continues to climb higher in the bullish rating. Gold still has a higher spot on the table than USOil, but last week's activity suggests more of a bias for the latter.

Fundamental Spotlight

Here we can compare the inflation rates of USD and NZD. NZ has a much higher rate from consumers and especially producers. Although both central banks may still be gearing for more rate hikes in the future, the RBNZ may have to be more aggressive than the US.

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