A1 Trading Company

November 6, 2023

Dovish Signals From the Fed

Frank Cabibi

After a long string of news last week, investors have had time to interpret what is going on with the Fed and their latest sentiment towards interest rates. Powell is set to speak this Wednesday and Thursday per usual one week after the FOMC decision. We also have new from RBA later today regarding interest rates in Australia. Here is what we are looking at today:

EdgeFinder Analysis

Taking a look at gold's score post FOMC shows us that the down trend could finally be over now that the score has flipped from a strong bear to bullish reading. Despite seasonality pointing to a historically down month, price has completely ignored the signs and pushed above the $2000s zone.

Seeing higher PMI data last week hurt the metal's economy score, but other categories helped carry the bias. NFP was a giant factor in scoring which came out lower, while unemployment rate came in higher. COT is also buying the metal and shorting the dollar according to last Tuesday's activity.

The AU pair has been stuck in a downtrend for some time now, but FOMC helped spark optimism in the risk-on pairs. Price broke above a heavy trend line to the downside and established a new high in the 0.65200s.

Later tonight, Australia's central bank will announce the newest decision on interest rates. Expectations of the RBA hiking by 25 bp could be an additional push to this pair as we look at a less hawkish dollar and increased hawkishness on the Aussie.

USDCHF is now a neutral reading from a strong bullish reading. The past month has looked mixed overall as the pair went from strong bull to neutral score and then repeated the process once again. COT also appears mixed as they sold both assets last week.

After FOMC introduced some dollar weakness, it may suggest that the pair is finally looking to move to the downside. Retail has a strong leans towards the dollar despite the fundamentals that are working against it now. This is one of the few times where COT and retail are in congruence with each other.

Retail Spotlight

Retail positioning shows us that traders are now majority mixed on the USD with a few exceptions. These being USDCHF and USDJPY. Gold reads a mixed score, and so does NZDUSD, GU, EU, and USDCAD.

Smart Money Spotlight

Last week's Smart Money report showed us some telltale signs of a less hawkish market. Speculators are now betting on dollar weakness and currency strength in the risk-on area. EUR, NZD, CAD and AUD all saw positive growth in net bullish positioning. Even gold is getting close to an even score on the positional bias which has reversed from net short to close to 0%.

Fundamental Spotlight

According to interest rate data on AUD, the RBA isn't expecting to cut interest rates until Q3 of next year. Right now, there is a neutral reading for AUD on the interest rate score, but it will change to a positive score if expectations are met or beat of another 25 basis point tick up.

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