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July 20, 2023

Don't Be Fooled By Dollar Strength

Frank Cabibi

As earnings rolls out, the dollar grows in demand for a few reasons. On top of a disappointing tech earnings from Tesla, investors are also looking forward to the next week rate decision. Next Wednesday is the Fed rate decision. Up until then, we'll probably see considerable volatility in the dollar, gold and indices.

EdgeFinder Analysis

Stocks pull back amid a weaker than expected Tesla earnings. NAS100 dropped after profit margins slid in TSLA's report. Aside from the uptrend overall, investors are fully expecting another hike at this month’s meeting. A higher interest rate is not good for such assets, but investors may also be anticipating the last hike of an aggressive tightening cycle.

Smart money also likes this index as they are becoming increasingly bullish. Meanwhile, retail leans further bearish as price rises. This season’s earnings and next week’s rate decision will be fundamental in price movement. There is support around March 2022 highs with resistance above at November 2021 highs.

USDJPY rebounds some this week as we approach the interest rate decision. The expectation of another 25 point hike is nearly certain, investors are treating it as such. With relevance to the 2 year yield, UJ will gain demand on hawkish sentiment.

Price came back up to resistance around a rising trend line on the 1D timeframe. Further resistance lies above around 140.895.

Gold struggles with both good jobs news and the Fed funds expectations. However, the metal is still in the EdgeFinder's favor. At +4, gold could gear for more upside. Up until next week, things may seem unpredictable and volatile. That's because investors are trying to gauge sentiment.

Despite the recent sell off, price is still in an overall uptrend. Seasonality also suggests upside for the month on a historical performance level. Smart money continues to like this pair as they increase the number of net positions to the long side.

Retail Spotlight

Retail is not long indices. They are also not long gold. Not much has changed since the start of this week, so we're keeping the same bullish sentiment on indices and gold.

Smart Money Spotlight

Despite the harsh sell off we're seeing on the 1D timeframes on indices, SM is still majority long on tech stocks. After an incredible run, investors are likely taking profit and waiting for the rate news to blow over. Up until then, markets will likely be volatile. As institutions wait for the move to happen, so should we.

CB forecasts for the USD show another hike this quarter. The expectations of another 25 point or two are pretty high. Now that inflation is moving in the way the Fed desires, it's now more about how fast inflation will move towards that target.

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