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Major Alert For USD Pre-Fed Meeting

September 18, 2023
Frank Cabibi

This Wednesday, the Fed meeting will announce their next rate decision. Expectations are largely on the side of a pause although inflation data puts pressure for risk-appetite. Here are some setups we are looking at going in the interest rate news.

EdgeFinder Analysis

AU is one of the strongest bearish readings on the EdgeFinder now. At a -9 score, price is looking very bearish. All factors point towards a stronger dollar except for the unemployment category. Net change on the COT side shows a clear bias towards USD which saw nearly a 3% uptick in long positions. Meanwhile, AUD became more bearish by 1%.

Wednesday's interest rate decision in the US will be a pivotal moment for major pair traders. Despite the concerning rise in inflation over the past few months, investors still seem to be thinking there will be a pause from the Fed this month.

Gold came up to resistance again on the hopes of another pause. However, price has been unable to break this level so far. Until we see a higher move to the upside and a break in this trend line, the bias still looks bearish overall.

COT also showed us a decrease in longs and an increase in shorts on the metal. Seeing that the bias is changing to the bearish side suggests that investors are not confident in a higher gold price this week.

USOil is something to watch as well as we approach Wednesday's decision. Oil has been a very strong bullish reading for a while due to a handful of factors such as smart money, inflation, and GDP. Labor is the only factor that points towards dollar bullishness.

Because we've seen higher NFP numbers and CPI over the span of a few months, oil found strength to the upside. The commodity thrives off higher inflation numbers and will undoubtedly be moving come Fed's interest rate. Higher rates would not be good for oil, however, a pause may help the commodity remain at these elevated prices.

Retail Spotlight

Retail tends to go long the things that are doing down and vice versa. AU, NU, USDCHF, and GU are majority long. These assets are mostly bearish on the EdgeFinder. Meanwhile, USDCAD, USOil, and UJ are majority short.

Smart Money Spotlight

The SMT reveals some compelling data for risk-off trading. It looks as though risk-on assets are getting sold while USD, JPY and oil are getting bought up. AU suggests an even further bearish stance on the pair. The bottom chart shows positional biases over time each week. AUDUSD's bias has further declined in the bearish direction for the past three weeks.

Fundamental Spotlight

The CLB shows more hikes in the future to reach a peak of a little over 5.4% interest. Over time, it seems that the dollar will become less restrictive than it is now. But in the next few quarters, it seems like the interest rate is going up.

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