A1 Trading Company

July 27, 2023

Fed, ECB and BOJ Outlook

Frank Cabibi

Today and tomorrow are pivotal for USD, EUR and JPY assets. The Fed and the ECB have both raised rates again, and we wait for the BOJ decision later today. Now we will try to cover the complicated stances from all three central banks to uncover which currencies are going where.

EdgeFinder Analysis

NAS100 is very bullish on the EdgeFinder. Ranked at a +7, the index continues to push off the lows from last week. Yesterday's Fed decision and statement caused a slew of volatility of uncertain investors. Today, it seems that the smoke has cleared on some of the confusion in terms of monetary policy.

Today's healthier economic numbers suggested the bullish sentiment today. Good numbers paired with a potential Fed pause next meeting are a good sign for the bulls who are anticipating the end of rate hikes. NAS is bullish in all categories but interest rates, which takes into account the restrictive territory US is currently in.

EURUSD takes a considerable pullback on the 1D timeframe on recent interest rate news from both USD and EUR. Investors now have to consider which asset is going to be stronger long term. There are a few things to consider: inflation levels and forecasts. The ECB is battling some stubborn inflation, reluctant to dip amid each hike. Meanwhile, CPI and Core CPI are complying in the US.

The Fed is also expected to cut in the back half of 2024, whereas ECB is not expected to cut at any point next year. Price is moving down towards a healthy support zone around 1.101 which is also around a month-long trend line.

Gold is a weaker bullish score on the EF but is still in the bullish range. Commodities sold off hard this morning which likely has to do with the good economic numbers from the US. Higher Advanced GDP and lower jobless claims are good for economic health, something gold is weak to.

Although it is a tough environment right now for the metal, expectations are arguably more important. This bearish aftermath in price action could be another setup for the bulls. The question is when to consider the entry.

Retail Spotlight

Retail is short the most bullish assets and long the most bearish. US30 being the best performer, SPX500 and US30 follow behind. Commodities are also heavily shorted by the crowd. USD pairs look mixed.

Smart Money Tracker

Smart Money tells us a different story. For commodities, they seem to be piling up on the long side while heavily getting rid of their short positions. The bottom chart shows gold on a positional bias. Just from a glance we can tell that the net long-to-short positions have drastically changed from neutral to heavy bullish.

Fundamental Spotlight

Here are the two forecasts for USD and EUR going a year out. Judging by these charts, it appears that USD is going to see a cut in interest rates before the ECB does. Right now, there is no indication of a EUR rate cut any time soon. Whereas with the USD, investors at least see the light at the end of the tunnel.

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