A1 Trading Company

October 30, 2023

Trading Ahead of NFP and FOMC Rate Decision

Frank Cabibi

Traders prepare for another volatile week as the Fed sets to update the latest interest rate data in the latest FOMC meeting. On top of that, NFP will come out Friday which is expecting to come in much lower than last month. Here are some ideas and setups for pairs surrounding USD.

EdgeFinder Analysis

As we approach the latest interest rate decisions in the US and UK, GBPUSD sits at a strong bearish bias on the EdgeFinder. The score has been in bearish territory for some time now as price action has not been strong. The fundamentals continue to point the pair towards more downside.

Wednesday and Thursday will be exceptionally volatile for this pair as we have FOMC on Wednesday and BoE the next. Both countries are expected to halt the rate hikes this time around, but what does this mean for their respective economies?

Higher rates for longer is not the ideal scenario for a country's economy, but it's the best choice for now. Lower rates will strengthen inflation and higher rates will likely cause a harsh recession. And the higher interest stays, the more prone an economy is to such a thing. The UK is expecting to hold higher rates for longer than the US until stubborn inflation comes down to its 2% target.

AUDUSD is still in the bearish camp at -5 yet price has moved up near a level of resistance. Recent dollar bearishness has caused many dollar pairs to slide regardless of higher yields over the 5% mark. ADP and NFP come out this week, which will likely spook the market.

Sentiment is mixed for both metrics. ADP numbers are expected to come in hotter than last month while Friday's number is tremendously lower. Although ADP NFP is wrong quite often when predicting actual payroll numbers, a miss will still likely be a positive move for the pair while a beat could cause further drawdown.

USDCAD is now the strongest bullish reading on the EdgeFinder. Similarly to what was mentioned about the AU pair, UC is going to be reactionary towards the news this week. In preparation for these moves, it appears that smart money has once again bought the dollar. CAD saw a small growth in positioning but it does not look like much overall.

COT is net long USD and net short CAD, retail is less than 25% long and majority short. The USD has CAD beat in just about every category except the labor market which is reading 0. Seeing any higher number on the NFP and interest rate side will be more of a bullish push for the pair. However, it is most likely that the Fed will remain unchanged this meeting.

Retail Spotlight

The majority of retail traders are bearish USD with the exception of USDCHF. USDJPY and USDCAD are the most shorted pair of the majors while the most longed are NZDUSD, AUDUSD, and GPBUSD.

Smart Money Spotlight

Last Friday's smart money report showed us that the big players are now buying the indices. SPX is the most bought up asset on the scanner right now. However, NAS was the third most sold along with NZD in second and JP225 in first. Gold also got an increase in long contracts as it sits in the top 4 on net long positions.

Fundamental Spotlight

The labor study broken down on the GBPUSD pair is shown above. Here we've seen a stronger labor market in the US and a weakening one in the UK. Higher unemployment rates in the UK have also caused pound weakness.

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