A1 Trading Company

January 3, 2024

Why The Dollar is Higher Today

Frank Cabibi

Risk assets retreat this morning as March rate cut bets dwindle. Future Fed predictions are dialing back further into the year and keeping the expectations to a minimum. The dollar index is up over 1% today while gold and stocks are down about the same.

EdgeFinder Analysis

NAS100 is one of the strongest bullish readings on the EdgeFinder despite today's 1% dip. The index beats the dollar in almost every category except inflation and retail sentiment. This tech index has been bullish for the past month without ever flipping score indicating a strong bias for the stock market.

However, investors are starting to doubt that the Fed will actually be cutting rates in March. This comes to no surprise since Powell has never mentioned one that early in the year. For the past year, potential cuts were projected to come in latter half of 2024 on the Fed forecast.

Gold is coming down to a level that could be worth considering for the bulls. A rising trend line on the 1D tiemframe has formed and could be the support needed to reignite the uptrend. Gold saw a net 0 increase/decrease in interest from smart money from last week's COT report.

What bullish gold investors need to see this week are now a combination of higher economic figures and dovish talks. This higher PMI could be a good sign if inflation continues to fall lower; this means that wage growth needs to stay low while NFP comes in higher.

USDCAD does not have a strong bias either way, but this pair is worth mentioning purely based off sentiment. COT had a strong weekly change to CAD bullishness indicating that smart money likes the UC short play.

The pair has not seen a strong bias for a month now, but as we start off the New Year, things are likely to change. Not only is smart money bullish loonie, but oil is catching a lot of demand as well. A few factors keeping the pair from becoming more in CAD's favor are economic and labor market numbers.

Retail Spotlight

Retail sentiment is largely short indices. Meanwhile, the crowd is also mixed for the USD pairs and gold. Oil is now one of the most longed pairs which could indicate further weakness in the commodity.

Smart Money Spotlight

Smart money took some strong positions last week as CAD, ZAR, CHF and US30 saw a large increase in bullish interest. On the other side of the coin, bonds, pound and USD are being sold.

Fundamental Spotlight

Both US and Canada are reporting labor numbers this Friday. Although a higher NFP is generally a bullish sign for the dollar, wages and inflation continue to come down. A healthy outcome for a bullish CAD bias would be if Canada also posted higher numbers. However, expectations for both countries are lower.

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