A1 Trading Company

March 11, 2024

It All Comes Down to CPI

Frank Cabibi

Investors are now waiting for the latest monthly CPI data to come out this Tuesday. Expectations are lower for Core CPI, higher for m/m and unchanged y/y. Let's go over what could happen if there is higher or lower numbers in the inflation data.

EdgeFinder Analysis

Last week, we talked a lot about a potential stagflation issue going on in the US. It comes down to tomorrow's CPI number and how investors interpret the data. Gold most likely wants to see a higher level of inflation to indicate falling growth and labor with rising CPI.

The metal's score has changed by -1 to take price down from +7 to +6. COT still shows heavy interest in gold and bitcoin which could be serving as a hedge to stagflation. Instead of beating expectations, it will be important to watch which CPIs come in higher than the previous month, Core especially.

The NAS100 is still hanging on to the uptrend although the index is down today. Tech stocks have been outperforming the rest of the market with help from strength in the semiconductor sector. Because stocks have been very resilient over the last couple months, it's hard to say when/if a pullback will happen.

Tomorrow's number is going to be very important in determining direction for the stock market. Unlike gold, investors want to see a softer inflation number which would help alleviate pressure from the Fed who may think they will be forced into a rate cut should inflation continue to rise.

GU is still a strong bullish reading on the EdgeFinder although the score fell by -1 since Friday. The trend reading is now weaker than before after price came up to test a strong resistance level on the 1D timeframe.

Tomorrow's CPI is equally as important for this pair as the pound is trading directly against the dollar. CPI values will determine whether GU is on support or resistance in the next few days. There could be a bullish argument for both higher or lower CPI. This is because both directions could still indicate a rate cut. Either way, it's bearish for the dollar.

Retail Spotlight

Retail is still bearish the indices but recruited a few more players to the short side. EURUSD, GBPUSD are now short by the crowd. USOil is still long and a few other USD pairs are still mixed.

Smart Money Spotlight

Smart money is long metals, oil, dollar, pound, yen and Nikkei. Meanwhile, they are selling bonds as well as US30 and NAS. This week's change looks a lot more risk-off than the others.

Fundamental Spotlight

Although a positive change in US inflation will cause the EF score to change to a -1 on the pair, it still may be bullish this time around as fears of stagflation in the US are still prevalent. Either way, the Fed is likely going to cut rates. It is just a matter of whether they are forced to or not.

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