A1 Trading

Getting Ready For Another Fed Hike

July 24, 2023
Frank Cabibi

Expectations are almost unanimous towards another Fed rate hike which will be decided on Wednesday. As big tech earnings reports today, the indices, gold, dollar and commodities are heating up in volatility. Here is what could come of the markets pre and post-rate decision.

EdgeFinder Analysis

Gold sits at a strong buy on the EdgeFinder. At +6, the metal has been undergoing a larger pullback on the longer timeframes. COT showed a large increase in bullish sentiment for commodities while indices remain on the back burner for now.

Investors are not certain of market sentiment going into this week as the Fed decision approaches. Although higher rates are not good for assets such as gold, investors could be anticipating the last of what was an aggressive monetary policy cycle.

It still looks like there is more room to drop to the downside for the NAS100 index. COT is not confident in stocks this week as we saw an aggressive shift to bearish sentiment around these assets. Thus, this week could be in the red until rate fears and earnings news subsides.

Price could come down further to support around $15,200-15,300s where there is a rising trend line coupled with a double top on the 4H timeframe. The overall trend remains to the upside which is promising to investors. The index will have to test that level and show confirmation to the upside in order to look convincing enough to move higher.

USOil is only at a neutral rating on the EdgeFinder, so it may seem confusing as to why it's being talked about. The historical backtest feature is good at recognizing trends as the score shifts. Although a high score is bullish for the pair, it's also important to watch for shifts in sentiment.

In this case, oil was ranked at a -7 strong sell in May. Since then, it had become less bearish on the commodity over time. Now the EF is leaning slight bullishness/neutral for the month of July. Economists are expecting a rise in demand from a rebounding Chinese economy and shorter supply around the world.

Retail Spotlight

Retail traders are majority short indices and commodities. The strongest biases being the short bias on GER30, SPX500 and US30. Meanwhile, the commodities are appearing more mixed with a slight bearish lean.

Smart Money Spotlight

On the COT side, sentiment is very different. Smart money is expandingly bullish on gold and oil after last Friday's change in activity. Because of the change in longs and shorts, there is a harder bull reading. The positional bias is helpful in visualizing the net positions on both gold and USD. In this case, institutions are liking the metal more.

Fundamental Spotlight

This week, these three countries will announce GDP numbers. The US is watching a declining output while Canada saw an increase, and Euro-area didn't change. Expectations are not very optimistic as we approach the latest numbers, although CAD expects a slight rise. In the US at least, the Fed wants to see further decline in order to be more confident that inflation will move towards its 2% target.

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