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USD/JPY is the key pair to watch for insights into stock market sentiment. Investors have labeled the unwinding of the carry trade as an overreaction, expecting the dollar to regain strength. However, the chart suggests a different narrative. Time will tell if the carry trade continues to push investors out of the dollar and into the yen. The pair has hit a strong support trend line on the daily timeframe, and if it breaks this level, we could see a shift back to risk-off sentiment. This could lead to another sell-off in stocks and the dollar, while gold may gain upside demand.
- Frank

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Mixed PMI?

The latest round of PMI data came in with a beat on Services and a miss on Manufacturing. Traders might count this as mixed sentiment from purchasing managers, but it may be arguably good for the economy. Because the US is primarily a service economy, it seems more important to see improvement in that area over the other.

Gold has reacted negatively to this news and is down a little over 1% today. The EdgeFinder still think the metal is bullish, giving it a slightly stronger reading today after retail sentiment became more short.

Data from the A1 EdgeFinder
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Jobless Claims Come in

Numbers came in as expected for this week's jobless claims at 232K. Markets are mostly mixed on the day as a result, but the initial reaction was negative. Because claims have been so influential on price action, the meet in expectations is probably not great for bullishness.

On top of that, NFP revisions suggested that the job market is not as healthy as we thought. The tech index is stuck between support and resistance again, but the support seems stronger due to the 50 DMA, previous double bottom and previous top.

DXY Daily Chart:

The slide in the US dollar continues - as Powell signals the fed's attention has squarely shifted away from inflation and towards employment.

This shift in focus greatly increases the chances of the fed cutting interest rates in the coming months/years, to help bolster the jobs market from its recent slowing signals.

Congrats to fellow bears - this has been a heck of a move!

- Nick

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The NASDAQ is now a +7 on the EdgeFinder and is still a bullish reading. There is not much news around the USD this week, so most of the sentiment is going to revolve around big tech earnings. The year's money-maker has been NVDA, so there is much anticipation around the stock's earnings.

This is because investors want to be able to justify the company's valuation at current price. Unless NVIDIA cannot blow the latest report out of the water, it may cause the stock to take a sharp turn lower. Likewise, a strong beat in earnings, revenue and guidance could keep the tech market up.

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Precious metals are in high demand as gold touches near the all time highs again. With the Jackson Hole Symposium behind us, investors are now expecting a rate cut next month. This cut is in response to a declining jobs market which is not a good sign for the US economy.

As much as we may try to overlook the fact that inflation is stubborn and jobs are falling behind, this rate cut is not good news. In this scenario, the Fed is cutting because they think they have to, not because they have the luxury to do so. That's the thesis behind why gold will see further demand most likely. The metal is a great hedge against the weaker dollar and stock market.
- Frank

Japan's stock market has recovered over half of what it lost in early August. COT shows a lot of buying in the stock market which has outpaced the yen this week. NIKKEI is usually correlated with the US stock market, so tech earnings does have an impact on Japan's stocks as well.

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Retail is buying all the global indices except UK100, so the contrarian score is bearish for most indices. Gold is mixed while the dollar is getting heavily bought.

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COT reports show strange activity with the indices. NIKKEI and DOW are the top most bought. Meanwhile SPX and RUSSELL are at the bottom of the list. The dollar is also getting sold while gold and NAS are more neutral.

With GDP coming up, analysts are not expecting much in terms of growth. Last month was a strong reading which is expected to happen again at 2.8%.

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Looking at tech stocks as we approach NVDA earnings tomorrow. The index is now under the 50 DMA but has not necessarily confirmed a break below this strong level of support. The market hasn’t really moved for the past week as we bump around within this consolidation zone. Powell has pointed to a rate cut in September, but the market has not followed through with a bullish move to the highs yet. With a light news week, it seems like the indices are going to shift their focus towards earnings. -Frank

Gold is down at the start of the New York session, but has shown a better resolve than the US indices. The dollar is likely going to be weaker now that investors expect a rate cut soon, so gold is probably getting more attention on the demand side than other assets. Whether it’s a stagflation issue or a deflationary issue, gold looks healthier and safer than buying stocks near the highs or hoping for a dollar reversal.
-Frank

USDJPY turns lower on the day too, breaking under the long term support trend line. Overall, I think it’s important to monitor this pair as it depicts economic health in the US and the unwinding of the carry trade. It somewhat looks like today may be the deciding factor on index trend. We just need to watch UJ’s potential break lower.
-Frank