A1 Trading Company

March 20, 2023

Major Moves Ahead For USD

Frank Cabibi

There are some major news ahead for the EUR, CAD, AUD and USD pairs this week. Wednesday will be another Fed rate decision forecasted to be another 25 bp. Here are some events set to come out tomorrow:

EdgeFinder Analysis

UC is still the EdgeFinder's favorite buy score along with USDZAR at +7. Retail is going against one of the pair's most bullish months as we step into another Fed rate decision week. USD majors are likely to see a lot more volatility in the next few days as investors try to process and price in another hike.

The Fed has been adamant about fighting inflation, but Wall Street thinks they should halt during the banking crisis. Regardless of what anyone thinks, one thing comes to mind when there's uncertainty about the USD: don't fight the Fed. If they talk about raising rates, we should behave accordingly.

USD/JPY

With a neutral rating on the EF, USDJPY dropped down to a key support level on the 1D timeframe. Price has come down to a rising trend line and the 61.8% fib retracement level. Again with the funds rate decision on Wednesday, it appears that rates will come up once again and dollar strength will continue.

It is especially important to look at the big picture as daily sentiment constantly flips. The pair dipped back into a neutral rating after the trend reading flipped to the downside. If price bounces from the trend line, we could see a further test around the 135s. A powerful thing about the UJ pair is that it is both obeying the dollar and equities price action. Both SPX and UJ have been directly correlated recently (correlation coefficient of .51) as they start off the week in the same direction.

USOil (USO) is now the strongest sell rating on the EdgeFinder. Right now, oil is the only asset making sense right now. In the midst of straining between risk on and off, oil is the only thing moving in accordance with recession fears.

With the SVB collapse and a potential rate hike on Wednesday, investors are afraid of the collapsing demand on fuel. A 5% interest rate will likely crack the commodity, even though price has already sunken to 15 month lows.

Retail Spotlight

The crowd is both long and short the USD. Interesting, but not surprising. The market is getting opposing views more so now than ever. However, the one thing that stays constant is that retail is still constantly wrong. GU has ran up over 3% while they were majority short. USDCHF has dropped nearly 1% in the last 3 days of trading. USDCAD is more of an exception depending on when a long or short trade was entered; the pair is down over 1% in the past week but up 0.75% from March lows. EURUSD is up over 1.8% from March lows.

Smart Money Spotlight

On the CFTC's latest update, smart money is still heavy short yen which only makes sense why the Japanese stock market is the heaviest long. Behind the JP225, we got oil, EUR and USD. Although oil is heavily bought, the price is tumbling. The thing about institutional trading is that they will be buying on the way down. So, there is no clear time when oil may shift back to bullishness as it will likely keep the down trend for the time being.

Fundamental Spotlight

In all the chaos, traders may just be looking to take payment from swaps in the meantime while markets figure themselves out. The carry trade scanner suggests the best pairs to buy or sell to get the highest swap rate. According to the EdgeFinder, NZDJPY is the best pair to buy to receive a 4.85% swap rate each day minus your individual broker fees. On the flip side, USDTRY is the highest paying swap rate to the sell side. In other words, to receive a 3.75% swap rate on USDTRY, you would need to short that pair.

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