Money Market Mentor – 28 March 2023

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Welcome to our market snapshot, a weekly whistle-stop tour of the discussions and market analysis that occur at our weekly webinars.

This week we explore whether subdued equities, and recent blips in bitcoin and gold, shift the dial on my bullish approach — and why I’m keeping a particular eye on the Canadian dollar (CAD), currently the runt of the FX market’s litter.

NB: A quick note, after weeks of lagging, the Commitments of Traders (CoT) report is now up to date, giving us all a better idea of the lay of the land when it comes to long and short positions.

Speculators suggest we’re in at the ground floor

Last week’s mostly hawkish central bank announcements sparked an element of rubbernecking among traders as equities were quieter and less messy than expected, struggling to gain real momentum in either direction.

My recent bias has been on the long side, and the latest CoT data for the S&P 500 certainly backs this view. It shows that non-commercials currently have their lowest long position since 2010. With positioning like this, when push comes to shove the market has always found it easier to bounce back higher than continue lower.

For the S&P, we need to clear 4,100 to be bullish, which would involve breaking major resistance of the monthly and yearly pivots, as well as recent highs. The Dow will need to break 33,000 and the Nasdaq 13,000 to follow suit.

Intra-day shorts are an option, but as we move through the week I expect the picture to turn more bullish and my focus will be on longs. I am still expecting April and May to see decent upside and — once the week is up — market weakness should be behind us for a while.

CAD could be low-hanging fruit

There was a cleaner push down towards 101 than I was expecting on USDX last week, and my bias remains short. However it has bounced strongly from that support area and price action suggests there could be further upside to come. My line in the sand is set at 101.60, above which I will stop being bearish.

Looking at USDCAD, positioning around this currency pair has been turbulent in recent weeks, with commercials and speculators both showing extremes — the former bullish and the latter bearish. For me the most notable clue from the CoT data is the non-commercial net short, which has reached a four-year low.

My immediate focus is on the 1.3650 level — and plan A is to seek shorts below this. While the Canadian Dollar is currently the weakest of the major currencies traded, I am expecting a fightback in the coming weeks and will be looking for long options across the board.

Slowing for gold

A stronger dollar and weaker bonds have put the brakes on gold’s move higher, but I see this as temporary.

My preference would be for it to hold above $1,940/oz and consolidate while the greenback and bonds retrace — and then to move higher when the Dollar and bond trends continue.

The yellow metal has plenty of previous for holding firm during uptrends, so a break below 1,940 would be a little out of character and a concern for my bullish bias.

Commercial selling in US bonds has seen a major jump, which does not bode well longer term for gold and silver, but I still think higher for now. Just keep a close eye on bond yields.

Bumps in the road

Bitcoin has stalled of late, but I’m still expecting it to trend higher for the next couple of months. Crypto history tells us to be prepared for bumps along the way — remember there was a 22% down day during the start of the last halving cycle.

Commercials have stepped in again on the long side but the positioning is far from bullish, with Ethereum marginally more ready to move up than bitcoin.

I anticipate a high ranging between 44,000 and 53,000 from around mid-May to mid-June. My confidence means that in the event of dips back to 25,000, or breakouts above 28,300, I’ll be out there looking for longs.

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