The Real Fundamental Analysis

[BeSomebodyFX]

So a bit more fundamental context with a potential trade for the week…

After the latest CPI, the FED is starting to acknowledge the progress made with inflation but it’s still pointing to at least another rate hike.

So?

So again let’s NOT get too carried away with the Dollar weakness right now.

@BeSomebodyFX

keep in mind the timing is perfect for a technical pullback now so do NOT chase Dollar shorts at these prices.

Something to keep well in mind.

Because you know…

The market moves a lot, traders that missed the move end up chasing right when the move is topping and they get squeezed in a normal and natural technical pullback, and then… they get stopped out right before the market continues the expected trend.

First, the move has extended quite a bit, and second… the market is now well loaded up on the idea of a bearish Dollar.

This creates an opportunity for a potential squeeze.

So… if the data this week starts to turn more favorable for the Dollar then watch out for a potential sharp and impulsive pullback across Dollar pairs.

In particular pay close attention to the retail sales tomorrow, those have the potential to surprise meaningfully above expectations.

But now let’s make it practical with some technical details…

Here’s an actionable plan on USDCAD.

Again, think about the context.

The market is now fully onboard with the idea of Dollar bearishness which, by the way, is perfectly right. It has all the reasons to be so, but…

But in the short term, the market does NOT move in a straight line, right?

Right.

So watch USDCAD for long triggers as illustrated in the chart above.

That’s all.

Again, remember that the medium to longer term fundamental bias for Dollar weakness is correct, here we are just laying down the plans for a potential short term pullback.

If the technicals trigger a trade great, if they don’t… no problem.

I mean…

Do NOT force trades just for the sake of it, it is essential that you are super selective with the positions you take.

Avoid the “boredom trades”, stick to the plan, and execute only the high quality opportunities.

[KoyaAndy18]

Do red news still affect volatility after 30 mins - 1 hour upon announcement.

[BeSomebodyFX]

The volatility itself? No.

I mean, the volatility hits only right at the exact release.

But the trend? Yes.

The right data at the right time sets the fundamental sentiment which creates the trend, so those flows continue for hours and days after the numbers are released. And if the data is meaningful enough to shift narratives it can even light trends that continue for weeks.

Think about it this way…

The volatility at the data release are algos and scalpers reacting to the headline number.

After that… you have longer term macro traders that often take positions hours after the data is released.

The algo and scalpers just react to the headline right at the release, while the longer term macro traders take time to actually understand and analyze whether the number matters for the overall fundamental picture or not.

So there are two types of reactions…

The short term volatility from the algos initially, and the longer term positionings from longer term traders hours after.

Is it always like this?

No, the relevance of the data and the magnitude of the shift in context matters.

For instance, take the latest CPI which we discussed above, and notice how that soft print started a Dollar bearish trend that lasted basically until today.

This one:

@BeSomebodyFX

Soft CPI on all fronts, headline and core, all soft so…

That had a short term reaction but a more prolonged trend started as well from that.

So the number had short term volatility at the release and it then also set the conditions for a medium term trend of Dollar weakness.

That’s because the CPI was a meaningful enough number to shift the expectations for what the FED will do with the interest rate… in this case, it created the expectations for fewer rate hikes which is bearish for the Dollar.

Now the retail sales today have the potential to shift that sentiment again and start a Dollar move that will go on for a good couple of days, so those need to be watched carefully.

[BeSomebodyFX]

So, a bit of context to keep you up to date…

The retail sales from the US weren’t as good as they could have been so we didn’t get that extra push higher on USDCAD that we would have wanted, but…

But the Dollar strength story for the week is still very much valid.

@BeSomebodyFX

So… if the data this week starts to turn more favorable for the Dollar then watch out for a potential sharp and impulsive pullback across Dollar pairs.

In particular pay close attention to the retail sales tomorrow, those have the potential to surprise meaningfully above expectations.

But now let’s make it practical with some technical details…

Here’s an actionable plan on USDCAD.

So… USDCAD upside for the week is still in play.

And keep an eye on other Dollar pairs too, I picked USDCAD in particular but the story is the same across most Dollar pairs.

[BeSomebodyFX]

Quick update for a bit of context…

@BeSomebodyFX

the Dollar strength story for the week is still very much valid.

Dollar strength? Yes… here’s EURUSD:

But NOT on USDCAD…

Sometimes you get the fundamental context right but you pick the wrong pair to trade it.

@BeSomebodyFX

And keep an eye on other Dollar pairs too, I picked USDCAD in particular but the story is the same across most Dollar pairs.

It happens.

Anyway, there’s likely more room for Dollar strength heading into the FOMC next week, so I think EURUSD has room to that next level at 1.1020 and there’s room for USDCAD to extend a bit higher.

Unlikely it goes all the way to what we projected as target level but we could see 1.3280 or so.

[BeSomebodyFX]

@BeSomebodyFX

there’s likely more room for Dollar strength heading into the FOMC next week, so I think EURUSD has room to that next level at 1.1020 and there’s room for USDCAD to extend a bit higher.

FOMC approaching so keep in mind the room for this Dollar strength to continue is shrinking so here’s how EURUSD looks right now:

Nearing that 1.1020 but not quite there yet.

While USDCAD is still chopping around 1.3180 and that hasn’t seen any follow through higher.

But anyway, what now?

More USD strength?

Maybe a tiny bit more, but the risk reward now is NOT favorable for Dollar longs anymore and the risk of a reversal during the FOMC tomorrow is high.

But why exactly?

Well, the upcoming FOMC is likely to be the peak of the tightening cycle and that’s fundamentally bearish for the Dollar in the current context…

I will share more details on that later.

For now keep in mind, Dollar longs are getting a bit riskier now, the FOMC tomorrow could pivot sentiment around.

Just a bit of context to keep in mind at the moment.

I will share more details on the upcoming FOMC soon.

[BeSomebodyFX]

@BeSomebodyFX

I will share more details on the upcoming FOMC soon.

So, important FOMC rate decision coming up tomorrow so let’s make a bit of context for it…

First, what is expected?

A 25bps hike.

Is that the most likely scenario?

Absolutely yes, the FED has very well communicated in advance their intent to hike 25bps at this rate decision.

@BeSomebodyFX

As of right now, the FED is expected to hike at least one more time, with some expectations priced in for another 25bps hike on top of that.

That’s coherent what the FED has been saying recently:

And Powell…

@BeSomebodyFX

But mostly, on what Powell has said at the latest FOMC rate decision where yes they kept rates on hold but pointed to two more hikes:

So what then?

Well, as usual with the FOMC the focus is NOT on the decision at the meeting itself but rather the forward guidance for what the FED expects to do at the upcoming meetings.

The FED communicates its moves in advance so well that the actual decision is already well priced in and expected BEFORE the event itself. So the focus is instead on what the FED is prepared to do after.

That’s what matters for the market, and that’s what shapes the sentiment and trends after the event.

So, the question becomes…

Is the FED going to hike further or not? Are they open to hiking further? And will they even need to hike further?

Those are questions that can be answered with Powell’s guidance during the press conference.

So again, keep in mind it’s NOT just about the rate decision itself at the FOMC events.

No.

It’s about the forward guidance.

So what the FED communicates that it expects to do next.

That language technically gets defined as either hawkish or dovish.

In this specific market context:

It’s hawkish if the FED talks about the need to do MORE monetary policy tightening, so more rate hikes.

And it’s dovish if the FED talks about LESS monetary policy tightening. So right now… if it expects NO more hikes.

Makes sense?

Awesome, that’s just a bit of context to understand for what actually matters during the FOMC.

Keep in mind, FED pointing to more hikes… hawkish and bullish Dollar.

FED pointing to no more hikes… dovish and bearish Dollar.

I’m obviously simplifying but you get the point.

I will share if there is any interesting trade setup to take after the event.

[BeSomebodyFX]

Alright, so… FOMC, what about it?

Nothing really.

Powell was quite balanced in his remarks with just a tiny bit of dovish hints, but nothing remarkable to trigger some strong short term momentum

Now, to make it practical…

Is there anything to keep in mind?

Yes, still this:

@BeSomebodyFX

the risk reward now is NOT favorable for Dollar longs anymore and the risk of a reversal during the FOMC tomorrow is high.

But why exactly?

Well, the upcoming FOMC is likely to be the peak of the tightening cycle and that’s fundamentally bearish for the Dollar in the current context…

Which we are already starting to see across the board with some Dollar softness.

That’s the overall fundamental context to keep in mind.

So… is the Dollar worth a short?

Depends, depends if you see any clean technical setup to position for that.

As always, fundamentals for direction, technicals for timing and confirming the entry.

[BeSomebodyFX]

Alright, there’s an interesting fundamental trade setting up.

So…

Recently we have seen two central banks scale their rhetoric to a more dovish tone.

The FED, the ECB, and the RBA just very recently.

Now there’s a forth that could follow suit.

Which one is it?

The BoE.

They meet on Thursday and there they are expected to hike 25bps.

Tho as already explained, usually the actual rate decision matters less than what the central banks expect to do going forward:

@BeSomebodyFX

So again, keep in mind it’s NOT just about the rate decision itself at the FOMC events.

No.

It’s about the forward guidance.

So what the FED communicates that it expects to do next.

That language technically gets defined as either hawkish or dovish.

So…

Yes, the BoE will hike 25bps on Thursday but what REALLY matters is that they will also point to FEWER rate hikes ahead than what’s currently expected by the market.

To make it simple…

The case for a more dovish BoE is rising and their rate decision on Thursday could be the catalyst for GBP weakness.

Now, let’s now put this into practice…

Looking across the board with GBP pairs I see something interesting on EURGBP:

These are the kind of technical setups that I like.

Price is near a higher timeframe support zone, it accumulated for some time… and it’s now breaking market structure with the break of the trendline.

With that said, the plan for the trade is right there on the chart.

Will update about the BoE on Thursday after their rate decision.

[BeSomebodyFX]

@BeSomebodyFX

Yes, the BoE will hike 25bps on Thursday but what REALLY matters is that they will also point to FEWER rate hikes ahead than what’s currently expected by the market.

To make it simple…

The case for a more dovish BoE is rising and their rate decision on Thursday could be the catalyst for GBP weakness.

BoE hiked 25bps which was in it itself dovish but hasn’t really been pointing to fewer rate hikes ahead so overall the event hasn’t been as dovish as it could have been but still dovish nonetheless.

So…

@BeSomebodyFX

Looking across the board with GBP pairs I see something interesting on EURGBP:

EURGBP squeezing in the right direction:

Keep in mind tho, as explained above, the BoE wasn’t really as dovish as it could have been so the move yes has room to continue all the way to the targeted level but it could start to pull back at any time.

Something to keep in mind.

[BeSomebodyFX]

The CPI tomorrow is the fundamental data to watch.

I know you know, but in case you don’t…

Inflation is in the spotlight right now as it is the metric that drives the FED’s moves.

A number BELOW expectations would add fuel to the disinflationary narrative which would allow the FED to stop hiking rates.

And what do fewer rate hikes mean for the Dollar?

Bearish.

While obviously a number ABOVE consensus is the opposite.

It would suggest the need for at least another rate hike from the FED which would trigger Dollar strength.

Think of it like this…

@BeSomebodyFX

That language technically gets defined as either hawkish or dovish.

In this specific market context:

It’s hawkish if the FED talks about the need to do MORE monetary policy tightening, so more rate hikes.

And it’s dovish if the FED talks about LESS monetary policy tightening. So right now… if it expects NO more hikes.

But with the CPI number as the indicator that decides the FED’s next move.

So higher than expected inflation would mean a more hawkish FED and lower than expected inflation would mean a more dovish one.

So you can start to see how with this number we can already start to anticipate what the FED will do at their next rate decision, right?

That’s exactly right, and that’s what the market also does. It looks at the data and it starts to extrapolate that into what the FED will do later on.

And that moves the market.

Ok… now with that said, is it something actually tradable?

Yes, absolutely.

The point with this CPI release is that it has the potential to set the fundamental sentiment and thus the macro trend for the next couple of weeks so it will create plenty of opportunities to jump on either the disinflationary story or the opposite.

I will update after the number with more details and if there’s a solid trade opportunity to jump on.

For now, just keep in mind the overall context with the two possible scenarios around the CPI.

[BeSomebodyFX]

@BeSomebodyFX

I will update after the number with more details and if there’s a solid trade opportunity to jump on.

So, bit of a mixed view from the US data at the moment.

The CPI on Thursday was below consensus BUT the PPI, another measure of inflation that was released on Friday, was above consensus.

So NOT a clean directional medium term sentiment to trade at the moment with the Dollar.

Will update when there is a clean trade to take.

[BeSomebodyFX]

Alright, seeing a potential trade on AUDNZD.

What exactly?

So there’s a mix of bearish fundamental context coming both from the data from China which weighs on the AUD more than it does on the NZD, and the overall data from Australia itself which supports a more dovish RBA ahead.

But let’s put a plan on the chart:

So to put it simply…

Fundamentally we have a context where we should expect some downside on AUDNZD.

But why exactly?

As briefly mentioned above the recent data from China weighs on the AUD, while the data from Australia itself has also been printing on the soft side which suggests that the RBA will keep a cautious tone at their next rate decision.

That’s overall fundamentally slightly bearish for AUDNZD.

Alright, so that’s a bit of the fundamental context in simple.

While technically on the chart above you can see we have that noticeable trendline break suggesting a move lower too. Right?

Yes.

Once again…

Fundamentals for the directional context, technicals for confirmation and entry.

[BeSomebodyFX]

Quick update…

@BeSomebodyFX

But let’s put a plan on the chart:

Keep in mind the retail sales from New Zealand later are a bit of a risk to the NZD, if they print soft there is the potential for a spike higher back towards 1.0840 on AUDNZD.

I mean…

Context is still bearish and still suggests 1.07 is likely to be tapped but beware of a potential short term spike higher around the New Zealand retail sales later if those are weaker than expected.

If they are above expectations great, AUDNZD with that will easily be on its way to 1.07.

But there definitely is a risk they print soft.

Something to keep well in mind for the position.

[BillyBobPimpton]

I like the quick updates. Easy to run over to the chart to have a look along with your analysis.

[BeSomebodyFX]

Awesome.

And thanks for letting me know that as that’s how I can improve and optimize the thread along the way.

[BeSomebodyFX]

@BeSomebodyFX

Keep in mind the retail sales from New Zealand later are a bit of a risk to the NZD, if they print soft there is the potential for a spike higher back towards 1.0840 on AUDNZD.

AUDNZD trading near 1.0850 now after the weak retail sales from New Zealand yesterday.

@BeSomebodyFX

Context is still bearish and still suggests 1.07 is likely to be tapped but beware of a potential short term spike higher around the New Zealand retail sales later if those are weaker than expected.

Will share a chart when I see a clean technical trigger for a resumption to the downside towards 1.07, for now it’s likely that the chop continues.

[BeSomebodyFX]

Liking EURGBP longs here.

Let me show you a chart first and then let’s get into more details:

So, two things to note…

First in this case the more predominant is the technical side.

I really like that big impulse up right after price took out the lows below 0.85. On the daily chart it almost formed a bullish engulfing as a result of that impulse.

That in and of itself for me is a pretty strong bullish signal already.

But the correct question to ask now is…

What actually caused that move?

From yesterday right before that impulse to the upside you will notice one piece of data from the UK that missed consensus by quite a bit.

The PMIs.

That kind of miss from consensus reduces the likelihood of more rate hikes from the BoE which ends up weighting on the GBP. And if this dovish repricing continues as it should then the Pound will keep on underperforming.

So that gives us a bit of fundamental context on why exactly EURGBP is now apparently shifting its trend and so we have both the technical and fundamental side pointing to higher prices.

In simple this is the fundamental context and the technical structure right now.

I will update when there’s anything to update on.

[BeSomebodyFX]

Alright, keep in mind…

This week on EURGBP is more about the EUR than it is about the GBP.

Inflation data from Germany and Spain tomorrow, and then more on Thursday.

It matters?

Yes it does.

For EURGBP to keep on moving in the right direction we need to see inflation print at or even better ABOVE consensus. Why?

Because that would increase the likelihood of another rate hike from the ECB.

Something that it’s already being discussed between the ECB hawks.

Here’s Bloomberg from Friday:

So an upside beat on inflation especially in Germany would cemented another rate hike in September.

Ok so if inflation from Germany and Spain tomorrow is above expectations then we should expect EURGBP to start pushing well above 0.86 and head towards the 0.87 target?

Yes.

Ok.

But what if CPI doesn’t exceede expectations?

Well if it doesn’t EURGBP will start to explore prices below the entry level and at that point we would cut the trade at breakeven.

Will update.

[BeSomebodyFX]

@BeSomebodyFX

Liking EURGBP longs here.

Let me show you a chart first and then let’s get into more details:

Yes, moving in the right direction tho no strong follow through yet.

Some of the inflation numbers from Europe this morning were at consensus some just a touch above.

Anyway…

Tomorrow we get more data from Europe with also a bunch of ECB speakers and on top of it the ECB minutes. So plenty of catalysts.

And with all that in mind I’m leaning for a continuation higher towards 0.87. Especially with the ECB speakers which I would expect to point to another rate hike next month.

But either way…

Keep in mind, from here it’s 0.87 or breakeven.