A1 Trading Company

April 18, 2024

The Shift is Finally Here

Frank Cabibi

Indices continue to hurt as the US economy points further towards higher inflation this year. The Fed now has to decide whether or not it is worth cutting rates so soon. And if rate cuts are off the table, the sentiment shift might have redirected back to risk-off.

EdgeFinder Analysis

GU is one of the strongest bearish pairs on the EdgeFinder right now. The score is now -10 due to the downtrend slowing a bit. Retail is still long this pair while COT continues to buy USD and sell GBP. Because this pair is somewhat correlated to the US stock market, it will likely suffer more loss if the market does.

With threats of retaliation from Israel on Iran, investors look to put their money elsewhere outside of risk-favoring assets. So, they may flock to things like gold or the dollar, which is likely why the pound is seeing more funds pulled out of the currency from smart money.

Gold is still very strong on the 1D timeframe. Price clearly does not want to break under the support zone around $2300 despite rising yields. This is a concerning indication to investors that we could be in a heavy risk-off environment suddenly.

Rate cut forecasts keep getting pushed back further into the year, and at this rate, may get pushed into next year. The shift we saw in October through March was an optimistic one, but now it seems like we are back to the strict monetary policy we thought was over.

Small cap stocks are taking the biggest beating right now due to their highly sensitive nature to interest yields and borrowing costs. Geopolitical tensions are also not going to help this index perform well if sentiment turns to risk off.

Despite strong economic data, it is actually hurting optimism in the short term due to the fears of higher interest rates for longer. The market is trying to pare some of the losses from the last few days, although the S&P and NASDAQ have broken under significant levels on the 1D timeframe.

Retail Spotlight

Retail is betting heavily on crypto right now. The majority of the crowd is bearish dollar despite the continued rise in yields. The US indices are now mixed after being in retail's short positions. This could be a sign that traders are getting more bullish on stocks.

GBPUSD shifted from appearing more bullish to mixed as COT has flatlined the number of positions added to the long side on this pair. Meanwhile, retail is getting increasingly long indicating that the pair could dip further.

Fundamental Spotlight

Unemployment claims came in lower than expected but matched last month's number of 212K claims. Lesser claims than expected is a good sign that unemployment is slowing down and the job market is still in line with Fed policy.

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