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Dollar Higher Before NFP

August 31, 2023
Frank Cabibi

This morning, Core PCE inflation remained the same as expected and jobless claims came in lower, rattling the indices and gold. The dollar is pushing higher on the day as a result as the 2 year holds at elevated levels. With mixed sentiment rushing through the markets today, investors wait for the most important piece of data for the week: NFP.

EdgeFinder Analysis

USDCAD is looking more bullish amid this news today as further speculation around the Fed policy continues. Stubborn inflation rates from core PCE suggest there might be tighter policy going forward in September. Price historically performs well for next month, and the trend reading is also pointing to higher moves in the next week.

USD saw an increase in the number of longs from Friday's report while CAD became less bullish on the institutional side. All the numbers are pointing towards a lower NFP tomorrow which is also expected to happen. However, what really matters is if the number can beat or miss expectations.

If we do see a miss in expectations, the gold market could be in trouble again. The past few weeks have been a healthy uptrend, but price still struggles to break the resistance level around a major trend line. If price can't break above this trend line, it could be enough for a bearish move.

Tomorrow's NFP is expected to come in lower as well. Although GDP came in lower this week, NFP is going to be the main market mover. Anticipation of a lower NFP from last month could be enough to push price lower. That and the trend line which price cannot break might be enough for a bearish move.

AU looks very bearish on a fundamental and technical level, and the EdgeFinder agrees too. The pair's score is now a -9 going into tomorrow's NFP number. All the categories show dollar strength above the Aussie as risk-off sentiment kicks back in.

COT shows a higher lean towards dollar bullishness and the opposite for the Aussie. Seeing stubborn inflation numbers in the US is also concerning for risk-on pairs. Price has been in a long term downtrend overall, so the recent bullish rally could be another short setup for smart money.

Retail Spotlight

Retail is short UJ, USOil, USD and mixed gold. It's unclear as to why USDCHF is the only long bias from the crowd, but it stands as the strongest longed asset of the major pairs.

Smart Money Spotlight

New features have been added to the Smart Money Scanner that have made COT biases clearer. The blue and red text indicate which assets are leaning bullish or bearish depending on the recent change of long and short contracts. For example, GDP became more bullish from last week, while JPY turned increasingly bearish.

Fundamental Spotlight

Here's our latest numbers on unemployment rates for Japan, US, Australia and Europe. So far, the Fed has said that they are waiting for the job market to comply with inflation. If tomorrow's UE rate comes in hotter, it might be a sign of dollar weakness, however, rate is expected to be unchanged.

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