Lots of events in the US and Canada this week which ends with the main event of NFP.
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Here is gold's COT sentiment vs the crowd. We can see that retail traders are getting further bearish on the asset while institutions have held these positions elevated for some time.
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GU is now at a +9 on the EdgeFinder which is a strong bullish sign. The reasons for a strong bullish bias on this pair are more so because of dollar weakness. With the Fed chairman's testimony and NFP next week, the dollar could be in for a ride.
Stagflation usually comes from a slowdown in economic output while inflation rises. Output is gauged through GDP and labor numbers. We've already seen GDP lower at 3.2% from 3.3% last month. If NFP comes in lower, this will be show an overall slowdown in economic output in the US.
- Frank
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Gold is now a +10 on the EdgeFinder indicating a strong bullish reading for the metal. Today's score is up by three points due to a recent change in retail sentiment and the labor market. Today's unemployment claims came out higher than last week which is pointing to a worse performance in jobs.
Retail sentiment is now a +1 after crowd sentiment shifted to under 40% long. This means that the majority of investors are short the metal while COT shows something different. Last week's report shows a positive change in net positioning for gold while smart money is also slightly selling dollar.
Data from the A1 EdgeFinder
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A quick look at retail sentiment shows us majority bearishness on indices and bitcoin. USD is also leaning bearish while gold, GU, EU, USDCAD and oil are mixed. Oil's retail sentiment has fallen to 54% from 60% as the price tests the $79s. As the crowd's sentiment starts to fade, however, COT sentiment remains strong which is now over 70% long.
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USOil
USOil makes its third and possibly final attempt at resistance on the 1D timeframe after GDP numbers came in lower than expected. Usually, worse economic news is bad for the price of oil, however, inflation has not been coming down at the rate in which economists expected. Stubborn inflation could still be impacting the commodity positively as well as the ceasefire denial in Gaza which, unfortunately, makes oil bullish. USOil is now scored at a +7 on the EdgeFinder with the current geopolitical situation. If price breaks $79, it may try for a higher price at $83.
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GU is one of the strongest bullish readings on the EdgeFinder today. The score is at +9 after the recent news this morning in the US. There are more news on the way for the dollar which will help decide direction for this GU pair. The current number from durable goods and consumer sentiment may be suggesting worse inflation and possibly labor numbers next week. PCE later this week could also suggest what wage growth does next week. It appears that the dollar is weaker though as we approach next week’s news. GU may look to retest resistance around a double top at 1.282s on weaker dollar sentiment.
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Gold to 2100?
Gold took off on Friday after PMI and consumer sentiment came in lower. This is another reason why seeing economic slowdown now could be harmful to the dollar. The narrative flipped from “bad news is good news” to “bad news is bad news” when it comes to the USD. This is because we are witnessing stubborn inflation rates and slower economic output - or the potential for stagflation. Fears of stagflation are the fuel to gold’s flame, however, as it rockets straight through the $2,060s target range we had. $2088 may serve as a strong level of resistance for the time being. A pullback would give buyers a chance to scoop up the metal around $2,060 and $2,047 again. -Frank
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AAII Sentiment came in higher this week as the bull-bear margin is is increasing up to 25% from 18%. When the margin increases, it is showing that there are more bulls and less bears in the market from this Wednesday's report. The bull-bear ratio has increased by about 10% in the last three weeks indicating more optimism as we go into March.
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Retail is now short the metal while also being short USDCAD, USDJPY and the indices. Oil continues to remain mixed but is now getting close to majority bought by the crowd. AU and NU are among the highest bought assets right now.
-Frank
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Gold just tested a rising trend line on the 1D timeframe and seems to be breaking higher. On a technical scale, price action actually looks bullish now. On top of this, here are some reasons as to why gold could actually be fundamentally bullish at this time.
The past few weeks, we have seen stubborn inflation levels in CPI, higher PCE, while GDP stalls at 3.2%. I can better visualize this with the kind of data the EdgeFinder is grabbing and weighing in its algorithm. But the threat of lower GDP and higher inflation could lead to stagflation in which the metal thrives.
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Today's Preliminary GDP number came in lower than expected but essentially unchanged on a monthly basis. Right now, we're seeing a stall in growth combined with the latest four quarters of stubborn CPI levels. This could be a concerning sign for risk-favoring investors. If inflation can't move lower while GDP stalls or drops in the future, it could spark stagflation. This sort of situation is a bullish sign for gold, however. And employment figures play a key role in characterizing stagflation, so looking forward to next week, investors would want to see higher NFP to remain bullish on the indices.
Data from the A1 EdgeFinder
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Pulling in the latest inflationary numbers for CAD shows another decline in CPI today. A fall in Canada's inflation rate will positively affect the USDCAD pair as shown on the chart. Meanwhile, a fall in the US inflation rate will negatively affect the pair's score, thus canceling these two scores out. However, because the US has a higher rate of inflation overall, the USD is still favored by the EdgeFinder. So, the overall inflation score for USDCAD ends up being a +1.
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Oil is up today after the poor economic news. Perhaps investors are somewhat looking for the Fed to bring up the idea of rate cuts again in the Powell’s testimony next week. Or they could just be anticipating that 5.5% is going to be the peak of interest rates, and regardless of NFP, value of goods, consumer confidence, etc., it could ultimately end in a rate cut this year. Price is testing resistance another time on the 1D timeframe and could be looking to break out to higher levels above the $79s.
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Gold is still up against resistance on the 1D timeframe which is the rising trend line. The metal’s score is now higher on the EdgeFinder and is reading “bullish” according to our scanner today. Both consumer confidence and durable goods missed today, but it does not seem to have too much of an impact on the metal today. The major moves will likely come next week as we have NFP and wage growth from last month.
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