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CPI and Conflicts in Latest Hamas Attack

October 9, 2023
Frank Cabibi

This Wednesday and Thursday, the US will release their latest PPI and CPI numbers. At the time of writing this, the market is set to open higher after starting in the red from conflicts in the Middle East. Israel has declared war on Hamas which is another cause for volatility this week.

USDCAD is at +6 on the EdgeFinder as the dollar keeps chugging higher. The dollar index is positive on the day, however, a couple factors point towards dollar weakness. Due to Israel's recent declaration of war on Hamas, oil and gold are pushing higher. Yields are falling as well on the 2 year bond rate.

This week's inflation expectations are also expecting to see a drop from the previous month. The expectations could be misleading however, due to the past couple months' CPI moving higher. Right now, the EdgeFinder still has the dollar ranked stronger than the CAD, so we will have to see how the conflict unfolds between Israel and Hamas.

Oil got a gargantuan spike amidst news in the Gaza Strip. The commodity became 4.45% more attractive to investors this morning while price comes up to test the $88s level. Due to this conflict being in the Middle East, investors may be fearing that supply may shorten as a result.

The war on the Eastern front in between Russia and Ukraine trudges on, and this has already had a significant impact on the price of oil. This may be another catalyst for higher prices goin forward as price moves in between the $80-90s zone.

Gold is now a strong bearish reading on the EdgeFinder. At -7, the dollar is favored in almost every aspect of technicals and fundamentals. Seeing the metal turn from a milder score to a strong bear is very indicative of further lows in the future.

Price spiked today, however, because of reasons above. What we also have this week is an expected fall in inflation from the previous month. If predictions are fulfilled, it would likely be a bullish sign for gold as the Fed may consider loosening up on raising rates of interest.

Retail positioning still shows a bearish majority on the dollar as AU, XAU, NZD, and GBP are all net long with the exception of USDCHF. The two strong biases to the bearish side are USDCAD and USDJPY.

COT numbers show dollar bullishness, however. NZD, USD and AUD are the most bought while GBP, CHF and JP225 are the most shorted on the week. There seem to be more bearish biases than there are bullish. Gold saw a 3% net change to sells as the positional bias goes further into bearish territory.

Here are some inflation data for gold. The reference currency is the dollar. According to last month's inflation report, restrictive policy seemed more likely. Higher inflation is good for gold, especially above the Fed's target rate.

But the higher inflation moves, the more probable it seems for the Fed to step in with another hike. Lower wages have already come in before this news. If we do see economists' expectations get met, we will likely see a stronger risk appetite going forward to next month.

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