A1 Trading Company

August 10, 2023

What CPI News Means For Commodities, USD, Indices

Frank Cabibi

CPI news came out this morning, and the results were interesting to say the least. CPI and Core CPI remained unchanged while the year-over-year rate rose by 0.2%. This caused a major move on assets pertaining to commodities, USD and indices. Let's take a closer look at these inflation numbers and what it could mean going forward.

EdgeFinder Analysis

USDCAD is scored as the most bullish asset on the EdgeFinder as of now. At +8, USD has the upper hand on the Canadian dollar in a number of categories. For one, the fundamentals are pointing to a stronger dollar than CAD. With a higher interest rate, lower unemployment, higher inflation, and higher GDP growth, USD is looking stronger.

However, smart money has yet to show anything definitive yet. Institutions seemed to be mostly mixed this pair as COT reports show about the same ratio for both currencies. Today's CPI numbers in the US remained unchanged on Core and CPI, and y/y rose by cooler than expected. Softer inflation readings could be a weaker sign for USD as the Fed may not look to be as aggressive as before.

These numbers seem to be having a delayed effect on indices which were falling into the red in the moments before the opening bell. Unchanged CPI and Core CPI could also be an argument for tighter monetary control, but analysts don't seem to be worried about the Fed's 'soft landing' goal being fulfilled.

On the 4H, price continued making lower lows until around the $4,460s. Now price is up against resistance on a falling trend line which it has already tested before. If the SPX500 can break higher, we could be looking at a shift in direction and a possible test back at the highs.

USOil gets a "Very Bullish" reading on the EdgeFinder for a number of reasons (literally). Almost all the fundamentals check the boxes despite interest rates. Smart money and retail look healthy for a bullish bias. The growing interest from institutions is something to consider for the past couple weeks.

Inflation almost seems like a win-win for oil. This is because higher inflation usually helps oil price rise. But lower inflation in this environment also could mean a less restrictive Fed policy in the future. Either way, it's catching lots of demand from various factors and COT being one.

Retail Spotlight

Retail positions show heavy shorts on US30, USDJPY, GER30, USOil and SPX500. US30 being the most shorted index on the data table. USD pairs continue to be mixed in the crowd so it might be better to take a look at what Smart Money is doing.

Smart Money Spotlight

Here's another look at smart money this week. USOil positioning has increased for the past 5 weeks to be more net bullish. Commodities end up being at the top of the sentiment list. Today's inflation news might have been promising for these assets as well as the indices which are looking to recover from the last week's drop.

Fundamental Spotlight

Inflation forecasts show a continued fall in rates through Q4 of 2024. CPI m/m stayed the same which could be because of a stronger labor market. Both inflation and jobs need to comply to add certainty in a dovish sentiment from the Fed.

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