A Market Overview
Global markets experienced a volatile week, with indices recovering from Friday's lows while the dollar index remained stable. Mounting tensions between Israel and Iran fueled market anxieties, but positive financial earnings provided some relief.
US retail sales exceeded expectations, indicating a healthy economy. This news also bolstered the USD, potentially signaling further inflation increases. The USD/JPY pair gained 7 points, supported by COT and unemployment data.
The Swiss franc (CHF) faced heavy selling pressure following last week's report, as investors anticipate prolonged high interest rates in the US. This scenario favors carry trades for the USD/CHF pair, encouraging investors to accumulate this asset and others with low or declining interest rates.
The USD/JPY pair finally breached a significant resistance level on the daily timeframe. A potential retracement to the 151.5 level could present a buying opportunity for long-term investors. However, chasing the price higher might be risky. After breaking the highs, the uptrend may require a pause before offering another entry point. Currently, the pair trades at its highest level since the 1990s, with the next resistance around 160.
The USDCAD pair exhibits one of the strongest bullish biases on the EdgeFinder, currently at +12. The score increased by 8 points due to positive COT, Services PMI, and jobs data. Although historically a weak month for the pair, this year might be different.
Canada's upcoming CPI report is expected to show a month-on-month increase. If confirmed, this could boost the CAD, which is still anticipated to see interest rate cuts sooner than the US. However, a hotter-than-expected inflation reading might force the Bank of Canada to delay its easing plans.
Retail investors are currently long on several risk-on assets, including cryptocurrencies, Russell 2000 (small caps), and NASDAQ. Gold sentiment remains mixed, while SPX and GER30 are the most shorted positions among retail traders.
COT data for last week's sentiment revealed a mixed picture. Long positions were seen in metals, US indices, the dollar, and bonds. Conversely, short positions were observed in gold, bitcoin, silver, Russell 2000, oil, and various currencies.
US retail sales surpassed expectations and exceeded last month's figures. This news might be more bullish for the dollar than for indices. The higher inflation implied by this report could lead to further CPI surprises, potentially exceeding the Fed's expectations and delaying their planned monetary easing this year.