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Trading Into Inflation News

October 16, 2023
Frank Cabibi

This week, we have three reports on inflation for different currencies. The three currencies we'll be looking at this week are NZD, CAD and GBP. New Zealand is expecting higher inflation this quarter, all of Canada's CPI expectations are lower than last month, and the UK is looking at a 0.1% decrease in their monthly CPI as well.

EdgeFinder Analysis

CADJPY is still a strong bullish reading on the EdgeFinder at +6. Although there isn't much of a bias from the smart money retail side, several other factors point to a higher price move for the month. Take seasonality for example for October; we are expecting one of the most bullish months of the year.

Fundamental factors also take precedent for the pair. Right now there is a strong reading towards CAD on inflation which is currently helping prop up the score. If CPI comes in as expected or lower, however, the pair will lose some of the bullish strength on the inflation reading.

New Zealand is reporting their quarterly number on inflation tonight. It's a similar story to Canada as CPI is expected to drop. If this comes true, we may see some weakness from the kiwi. And vice versa for a higher CPI number.

If we do see a drop in CPI, price may go back under this strong supportive trend line on the 1D timeframe. And a beat in expectations could help price back up to the highs again. The trend line has served as strong support since April of this year.3

This Friday, the UK will announce their latest update on CPI. Canada's situation is much better as the score reflects a strong CAD lean. And if the numbers comes out lower than expected, it will likely further weaken the pair.

Fundamental factors like inflation and jobs are heavily pointing towards CAD strength which is doing better economically. The pair is -4 right now which isn't a strong bearish score. The pair has been in a down trend since July, but seasonality suggests higher moves for the remainder of the year.

Retail Spotlight

Retail shows that the crowd is mostly long on NZD and AUD. They are also short EUR, and CHF. The pound is mostly mixed.

Smart Money Spotlight

Smart money is long only a select few indices while short the rest. JP225, NAS100, NZD and USD are the top four assets from last week's report. NZD is the most longed asset of the three currencies mentioned in this article. GBP was sold last week, and CAD is the second most shorted asset.

Fundamental Spotlight

Here are the inflation data for GBP, CAD and NZD. The most stubborn of these three currencies is the kiwi which has reported little to no change over the past 4 quarters. GBP suffers from the highest inflation, but CAD is struggling with recent rising inflation rates.

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