A1 Trading Company

September 5, 2023

Top Setups With US Rising Rates

Frank Cabibi

Last week's NFP came out much higher than expected, turning sentiment to risk-off. Although the dollar is mixed right now, the dollar still looks bullish to the EdgeFinder. The 2-year yield suggests a stronger risk averse environment as stocks are also mixed in the midst of rising rates.

EdgeFinder Analysis

As we start the new month, UJ looks to be historically stronger throughout the rest of the year. Right now, this asset is scored at a +6 which is a very bullish reading mostly revolving around the trend and most fundamental metrics. Other than US unemployment, which is currently higher than Japan, all other categories are against the yen.

On top of this, we are getting some alarming indications from the US02Y (2 year bond rate) which is continuing to hold near the 5% mark and pushing higher on the day. The VIX - volatility measurement index - also opened over 9% higher today suggesting that the dollar could be finding some more strength.

While we're on the topic of higher rates and VIX prices, stocks fall on the day post-market open. The past couple weeks have been very mixed overall as price swings remain indecisive and do not form a clear pattern on the charts.

On the 4H timeframe, the index is moving back and forth, unable to clearly make a decision either way. It seems like the index is forming a falling channel with support near the $4490s. The recent candle is looking weak and might want to turn lower to test that support level.

EURUSD is one of the strongest bearish biases on the EdgeFinder still. September seems like the month where the dollar gets stronger overall, so USD might be the asset to consider to the long side. Historically, this pair has the most bearish month of the year on a 10 year average.

On the other hand, smart money actually got more short the USD this week while also shorting EUR more. As long as the 2 year yield continues to rise, it will be hard to push for a risk-on bias in the forex and indices markets. After the major fundamental news that came out last week, the yield curve will be one of the most important indicators to watch this week.

Retail Spotlight

Another good reason why USD is moving up is likely because retail is short dollar. AU, NU, USDCHF, and EU have the strongest long positions on retail. However, these pairs have been less and less optimistic as price moves lower for them. UJ, SPX and USDCAD are the strongest sell positions, however, these pairs are the pairs moving higher.

Smart Money Spotlight

COT is showing mixed signals, however. Other than the metals market, everything else seems mixed or bearish. Smart money is getting more short the dollar, euro, and indices. AU is getting more bearish over the past couple weeks as the positional bias shows a negative 21% bearish signal.

Fundamental Bias

The risk gauge is pointing to a more risk off environment as the monthly and daily meters suggests stronger USD, JPY and CHF.

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