A1 Trading Company

February 8, 2024

Dollar VS Indices, Which is Going to Give?

Frank Cabibi

Our current economic environment has resulted in both the dollar and indices strength. A slew of healthy economic data has propelled the bullish sentiment surrounding these two areas to where buyers in both markets were correct. But at what point will one overtake the other?

EdgeFinder Analysis

USOil is now a strong buy on the EdgeFinder at +9. After last week's grand sell off of nearly 10%, price has found some ground to stand on. Israel's rejection of the ceasefire from Hamas has progressed the ongoing tensions in the Middle East and driving up demand.

On top of these geopolitical risks, supply is expected to drop by next year and US oil production is expected to slow. Oil's score went up by 6 points with trend reading and labor market news carrying the sentiment today.

Gold looks to be holding on to this trend line on the 1D timeframe. There could be a bullish stance on the metal as it is still in an uptrend and experienced a decent pullback to support. Price may try to retest the $2,060s again.

Despite recent dollar strength, the metal continues to hold up on significant support levels. The reason the dollar's price is rising could still be from the expectation of higher rates for longer and this week's Services PMI data.

Now the question is whether the dollar or the indices will crack first. With both markets performing optimistically on economic news, the main focus could lie in interest rate expectations. Right now, there is a high probability that the Fed will maintain rates in the March meeting.

However, by May and June, the forecasts are pointing to a cut. When it comes to dollar and stock futures, things are always forward-looking. Earnings is bringing stocks higher this week while possibly pricing in a summer rate cut. We'll have to closely monitor inflation which will ultimately decide which asset is stronger between USD and stocks.

Retail Spotlight

The dollar seems mixed among retail traders which makes sense in our current environment. Gold is mixed as well. The EF is giving oil a contrarian bearish signal due to the fact that the crowd is long oil 62% to 38%. Meanwhile, the only clear sign of bullishness is reflected across the indices. Not just US, but GER30 and JP225 are also heavily shorted by retail.

Smart Money Spotlight

Steadiness around smart money long positioning and the constant bearish outlook from the crowd suggest a clear bullish sign on the EdgeFinder. To see this constant behavior from November last year is a good sign for stocks. Maybe it's not yet time for a market pullback.

Fundamental Spotlight

This week's unemployment claims came in lower than last week at 218K. Jobless numbers still remain elevated as the past 3 weeks have been much higher than in January.

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