 Hi, my name's Leon Rowe, Currency Trader and Trading Coach at Trading180.com and welcome to this week's Forrest and Gold Fundamental and Technical Supply and Demand Analysis. Getting into the week ahead, so the 6th of August and the main economic data release will be the latest US CPI report for July. The last two CPI reports provided clear evidence of a slowdown both in headline and core inflation pressures in Q2. It was helped to encourage speculation that the Fed is close to ending their rate hike cycle. Another softer core inflation this week would help to reinforce expectations that the Fed has delivered their last hike in July. So that's going to be very important. The release of the latest labor cash earnings report from Japan will also attract market attention in the week ahead after making yield curve control policy settings more flexible at their last policy meeting. The Bank of Japan were still emphasised that they are not confident that inflation can be sustained at their 2% target in the coming years. As a result, the Bank of Japan is signalling that it is not yet ready to tighten policy by raising interest rates at the minute. The Bank of Japan would like to see more evidence of stronger wage growth in Japan to give them more confidence that higher inflation can be sustained. So definitely another key piece of data to watch this week. And finally the release of the UK GDP report for its Q2. Second quarter is expected to confirm that the UK economy expanded modestly through the first half of this year. While growth remains weak the UK economy has performed better than feared late last year when it was widely expected to have already fallen into recession at the start of the year. So the resilience of the UK economy to the cost of living crisis is placing more pressure on the Bank of England to keep raising rates to dampen the risk of more persistent inflation in the UK. And that report is an excerpt from MUFG. So before we get into the technicals and some other fundamental analysis for those traders who are in the Discord mentoring group just a quick reminder that I have in the Trading Videos channel. You have several videos that have been recorded this week. You have the weekly technical analysis that goes into a lot more depth with regards to setups etc. This week on way more pairs. Also as well the group call that we did on Wednesday and some other analysis and trading advice. And so let's get into the the technicals for this week. And so on the dollar index was just a measure of dollar strength. We've had the dollar rally over the past couple of weeks this week. Also convinced a lot of traders that the dollar was not as weak as first as the consensus has been over the past few months. I think probably from the beginning of the year really I think a lot of traders and a lot of analysts have expected the dollar to really kind of fall off a cliff edge. And although yes we have seen prices move to the downside it hasn't been a one-way trend to the downside as the dollar has been holding up better than expected. And the Fed was seeing waiting for more US economic data after mixed-job reports. So Friday the US adds 187,000 jobs that was non-farm payrolls, trading economists estimates of I think it was 200,000 unemployment though. So jobs came down but unemployment rate drops to 3.5% while wage gains heat up. And that's important because unemployment and wage gains really are what the Fed are looking for in terms of inflation. So unemployment needs to go higher for inflation to kind of come down as well as wage inflation as well. Average wages need to need to come down. So with regards to inflation the Fed are still probably on the fence with regards to whether they go into hold or hike. So the labor participation rate is unchanged at 62.6% and the Fed seem waiting for more data after mixed payroll report. Now according to the CME Fed Watch tool it looks like the market is still pricing in the chance of a no change. So this 87% chance of a no change and 13% at the moment of a hike but that could change this week with CPI data coming out. And again if CPI data comes out pretty much the same as the last reading or higher then it would indicate to the Fed that inflation is more stickier than expected and you are likely to see that leading to obviously a Fed rate hike which would then support the dollar actually to the upside. So again CPI is definitely going to be a major catalyst for whether you want to be a buyer of the dollar going into the next month or two. Now Fed's Bowman signals more rate hikes may be needed so she's quite hawkish in terms of inflation and there are several horts and several dubs. Some board members may feel that the Fed has done enough and some may think that they haven't done enough. So again for the dollar this week at least everything is going to really hinge on CPI. So moving on to the dollar yen and I'm actually bullish on the yen and this week we did have prices kind of move between well way past this supply zone. Now we've got prices kind of reacting but from this 14350 level a bit of a no man's land in terms of supply and demand but there's definitely some supply here now depending on again what happens this week we could see prices move to the upside or more to the downside but for me looking at this if you're looking at the year zones you're looking at even a move up to the 145 and even the 146's could be a decent sell right there or you're looking at potential for some buyers somewhere around here but again I think maybe some of these zones may not hold or this demand may not hold if the dollar if if inflation comes out really weak in fact I think that probably may be headed towards the 133's 132's. Now if you've been watching my channel for the last couple of weeks you've probably noticed that I said several times that I'm building my short position on the long position on the yen in terms of buying the yen in Schroder shorts Japan bonds and PIMCO likes yen in Bank of Japan game plans the UBS global wealth says bullish yen positions is a fantastic trade the markets are under appreciating the Bank of Japan's decision blue-edged says and I'm in agreement the top money managers are doubling down on convictions the Bank of Japan is well on the road to exiting the world's boldest experiment with ultra lucid monetary policy and that's really what your curve control is no matter what the Bank of Japan you know putting out in terms of their statements saying it's not the first step towards normalization of their policy in fact I believe that it is and obviously I'm in good company so for me you know I'm just looking at positioning myself on the yen and beyond this video many of the guys know that this week has been a really good week in terms of you know shorting the Australian dollar yen that we shorted the New Zealand yen and I'm still in a in a CAD sorry no a Swiss yen trade short as well so the yen has been working out really well this week now again for me medium to long term I'm bullish on that yen so any pullbacks I'm just looking at buying opportunities so if you do want to get involved in any kind of short buying the yen trade then or trade idea then I think this area up at these 144s 145s is going to be the first area you want to look towards getting short if you're looking to buy the dollar I think the nearest demand zone is going to be around the 140s if you're buying it against the yen that is you don't necessarily have to buy the dollar by the dollar against the yen could be any other currency but those are really the options for the week dollar Swiss in this I was in this trade broke even and still in this trade it's pretty much a break-even trade now can't lose on this and the really kind of deciding as to whether I should continue holding this and it's this will also depend upon what happens this week with regards to the CPI data so pullbacks could be buying opportunities in anticipation so CPI this week we can see in fact it's going to be on things the Thursday yes inflation for the dollar core inflation so that's going to be the the data right so we could see in fact if the dollar does weaken into the news event and then the news event comes out positive and that's going to be a really nice buying opportunity so maybe position yourself to potentially get long if you believe that you know the data will support your trade if not then obviously you're looking at trying to look for short trades in and around this area there's nothing really in terms of any kind of supply zones any strong supply at the moment so you'd have to really wait for prices to kind of make more of a supply zone there push further down then pull back up to that area there before looking at getting short so I'm not looking to really buy the Swiss Frank at all and yeah we'll see what happens with that currency pair dollar CAD and again last week talking about the the options and prices are pretty much move further up the Canadian daughter actually didn't have great news on Friday I think there I think it was employment end up coming out not not fantastic so again employment being linked to to inflation if employment goes down and unemployment goes up then inflation should want to rise and so it basically means that the Bank of Canada are less likely to want to high crates if the economy is cooling down so with that being said my bias is more on the short side for that Canadian dollar now so any pullbacks into for example something like a demand zone around here if you want to trade this currency pair and buy the dollar against the Canadian dollar I think that's decent technically I'm not personally looking at trading this until maybe after CPI the US CPI US CPI shows that they are likely to continue to hike and inflation is sticky then I think this is going to be a decent pair to look to get involved in on any types of pullbacks but those are really your options for now either you know to the long long side or to the short side in and around those zones now the New Zealand dollar US dollar was saying that my bias was was more short we have come back down to this area of demand where again I think it's going to be determined you know the price to the upside will be determined by what the US dollar does not necessarily what happens with the New Zealand dollar as a result of the US dollar potentially holding rates you could see prices you know move to the upside so it's not you know New Zealand strength is more dollar weakness and so yeah that's really the play that you're looking at if prices come down even more you're betting against the dollar then any moves to the downside pre-news can position yourself and then you know hope that price or the fundamentals do support your trade idea to the upside if you are looking at getting long on the dollar on any kind of pullbacks I think for me the 0.624 to 0.627 to the high of that supply zone I think is going to be decent for a short trade that area technically I do like it but again be more driven by what happens fundamentally the pound dollar right so the pound dollar this week the pound and the Bank of England did actually high crates less than what the mark with you know the market was it was with a market was kind of on the fence whether they were going to hike 25 basis points or 50 basis points they ended up pretty much hiking 25 basis points and and so the you know market took that as being a bit you know positive because the statement that the Bank of England made was was slightly more hawkish they kind of stick into their plan of hiking rates but the markets think that the pounds glory days are over as bets on ever higher rates fade and all central banks really are coming to an end of their hiking cycle you know if you look around apart from really Japan Japan are kind of you know actually looking to hike rates or you know may look to hike rates and so you know every cycle comes to an end and Sterling is second best performing currency in G10 this year in that Western BNP now see Bank of England delivering just one more rate hike and some I mean you know there are some analysts I believe that it's probably maybe two or three hikes and so you know it's not necessarily a consensus trade for now because inflation is still high but the pounds unexpected value this year may have finally run out of steam with the Bank of England moves close to wrapping up its tightening cycle analysts investors at firms including BNP Paribas and that West markets and State Street forecast officials will deliver just one more interest rate hike compared to the market expectation for two more and so they're all bearish on the pound so has the pound had its day I think the pound at the moment is still a buy and especially if for example the the US dollar you know getting inflation comes out this week and and they don't and the inflation is is low right or comes in lower than expected then you'll likely to see prices at least move to the upside now will we see a move past maybe the 130s 135s etc maybe maybe not depending on how how aggressive the Bank of England is with their rate hikes but if they do hike only one more time then you're probably looking at again the highs of one three ones might be where now we see this start to range or auction from and so with that I think the because the Bank of England is still hawkish and is a higher chance of the Bank of England hiking for me the bank the pound is still likely to be a buy at least in the short term anyway and so any pullbacks into you know these demand zones are buying opportunities I think again it you know is clouded a little bit by what may happen this week if the inflation does come out sticky for the US then you're likely to see possibly you know the pound start to sell maybe down to the 125s around here before then maybe stabilizing or finding some support in and around that area because you have two central banks that are actually high if you have two central banks that are hiking yeah hiking rates then you know the market is likely to you know find at least some support rather than continue trending to the downside so let's see what happens anyway but my bias is still to buy the pound at least in the short term so one second yeah so with that being said the other pound for me is is is more of a buy than the dollar until the dollar has its data release this week the euro so the euro we did get a little bit of support around this one nine just above the that demand zone again the data was kind of mixed in terms of US data so this wasn't necessarily driven by a strong euro in fact the euro were less hawkish so Christine Lagarde says what the ECB could hike again even after a pause Lagarde tells the Figaro so September meeting could see rate increase or a whole she says so you know whereas in in weeks and months gone by it was pretty much you know we're going to hike hike hike now it's like okay we're coming to the end and we may or may not hike right so that sounds a bit more dovish second quarter GDP data so far are quite encouraging so yeah let's see what happens with with that I do think that the euro will again probably be more supported by dollar weakness rather than euro strength because although she says that the second quarter GDP data so far is quite encouraging I haven't really seen it and you can see here German export still stuck in stagnation Germany being the the economic engine I guess for Europe and Germans Germany's economy hasn't been doing too well to support you know the euro zone so yes she's probably talking up the the euro at the moment but I think overall I think the economy is is kind of flatlining a little bit but let's see there could be obviously you know a bit of a pullback this week into a demand zone but then if you see prices or see the data come out and support or I say not necessarily support but goes against inflation goes to the downside causing the Fed to hold rates then I think you could see prices move to the upside or even continue moving to the upside from from where we are right now but again the opposite could happen if prices start to move higher and then inflation comes out supporting another Fed hike then that's going to be a really nice area to look for some short trade so again really driven by the macros this week Euro yen again we've found this this high and the prices did pull back to the highs as seen as an expensive area expensive area and so with the yen looking to potentially hike next year or end their negative interest rates which is a massive deal I think there's not really much upside left especially even if the the European central bank do look to hike in September I do think that the upside is going to be limited and I think it's probably going to be more downside as you get one all central banks pretty much look to hold rates and the Bank of Japan is using monetary policy to actually appreciate their currency so I think the upside is capped so if you do want to get short in here thinking that you want to get ahead of the curve then this decent area to look for short trades or bit more of a pullback if you can get one and if you do want to be a buyer of the Euro I think the discount is going to be around a 153s 152s even down to the 150s so that's where your options are Euro pound I'm starting to get interested in this in terms of just looking at this I'm gonna watch this perspective I think if the Bank of England continue to be aggressive and high crates then you should see more downside so any pull backs into these levels here I think a decent shorting opportunities especially if the the ECB look to hold rates if they continue to be a bit more dovish so any pull backs into these supply zones I think are going to be really really nice for a short trade as long as again the data supports the narrative and any pull backs into the what a 0.85 cent area could be a decent buying opportunity but I would rather at the moment look towards buying the pound over the Euro and we have the Australian dollar US dollar Australian dollar didn't have some didn't have good news this week was it last week I can't remember now but either way the data didn't support really any Australian buying so in fact well as I can see on the price chart that was it it was the interest rate decision that came out on the 1st of August managed to get in you know short and this has been a really nice trade so far and yeah against expectations of a rate hike and so that's pretty much been been the story for the Australian dollar and so the market had to price out a rate hike it was expecting the rate hike and obviously they didn't deliver but could this be the low of the of the range of the auction possibly if the US dollar again inflation comes in and it comes in lower than expected then I think in fact the downside will be captain you could see in fact some upside on the Australian dollar US dollar based off of US dollar weakness rather than Australian strengthening fact in all this area here is actually massive supply then those some traders would look at that and go well what the hell you know why would you draw massive zone of supply and it's really based off of just on lower highs and lower lows principles right lower highs lower lows lower highs lower lows right drawing supply from the lower low and lower high so you could even draw supply from any supply from each area here yeah which would basically encompass all of that three separate supplies and all you can just draw them as one so I prefer to draw them as one and how you kind of break that down then is look towards other methods of technical analysis like for example horizontal support and resistance within that whole area of supply yeah that's really what you know one of the things that you're doing I can't necessarily say everything that you should do but so this is one of the areas so you're ignoring in between then you just looking at areas of support resistance within that within those areas of supply because not necessarily get into it too much but understanding that this was an absolute bargain area yeah in fact let me use this right so this was a bargain area for the US dollar so much so so much so they broke to new lows yeah so this is the first zone that you must look towards if prices ever get up here to say where will this be a bargain again nobody knows nobody knows but we objectively know that it was back on the 31st of July an absolute bargain for the dollar because if it wasn't then prices wouldn't have gone down right and so we know that that lower high right there the first area that you want to look for short trades and so that's where we you know we have to draw that supply zone that's the second area that lower high that's the third and that's the fourth again nobody knows which one it's going to reverse one reverse from if at all but we enhance the probabilities if we're looking for a short trade you know on the fundamental side of things and so that's the reason why we kind of draw it as a bigger zone then we look towards this area here in terms of support and resistance and looking back we know that historically the banks and institutions have been trading and have traded this zone right and we know that because you can see rejections here rejections here rejections there there there and there so we know historically that institutions are buying and doing business and selling around those areas so within that area of the recent bargain so there's you know the two little tidbits that you can use when looking at you know when you have a situation where you have a wide area of supply you can look for horizontal diagonal diagonal meaning you know some trend lines and some others as well anyways not really a pair that I'm interested in in trading and less I think the dollar does pull back and then we get some good news for the dollar and the Fed continued to start hiking then I will continue to look for short trades on that and then finally we have gold and gold selling off a bit due to some dollar strength of course you know we've had is no surprise that you've seen you know go go to the downside when we go back to the dollar index you can see prices move to the upside so again it's going to be turning points this week probably may look to stop scaling into buying positions if you're debating against the US dollar but if not then you know you're looking at probably pullbacks into supply for a potential trade right so you're looking at that area there and looking at short trades that's providing you're trying to look to go long on the on the US dollar now central banks gold demand falls again on Turkey's massive sales so net purchases by the institutions fall 64% to 103 tons and massive sales by central bank of Turkey drove the decline so so yeah not great for you know central banks buying gold at the moment it says here continuation of that buying is now key for the outlook of gold this year apart from Turkey the second quarter saw large purchases by the People's Bank of China the Bank of the Monetary Authority of Singapore and National Bank of Poland so it's not you know all doom and gloom there are central banks who are buying right and the World Gold Council expects central bank demand this year to be roughly half of that of the record 2022 that's still with equal more than 500 tons of purchases according to the support and here it says is a quote I don't think we will see a repeat of Turkey's central banks selling off gold to provide liquidity to commercial banks a John Reed chief market strategist at the WGC by implication we would expect to see a better third quarter number so maybe it's just Turkey that had to provide a bit of liquidity by selling gold and obviously as well you know some dollar strength recently so let's see what happens but any buying opportunities I think technically down until the 1900 area is going to be quite nice just below that as well I think it's going to be decent or down to these 1820s so that all depends on whether you're going to see either gold dollar strength or dollar weakness as well so again by proxy you can kind of go long or short the dollar by buying or selling gold so that's it for this week hope you will have a great trading week and take care all the best so calculating news data deviation to trade the unexpected now conventional news trading is not an edge and what I mean by conventional news trading is if you're buying when there's positive news and selling when there's negative news that is not an edge and that's that's what I would call conventional news trading in case you don't know trading is a zero sum game forex trading is definitely a zero sum game for someone to win someone else has to lose and if the news comes out positive and everybody's buying you know maybe 20 years ago that may have worked and that's how traders made their money but in today's markets that is just not a trading edge and I'm going to show you how to have a trading edge by calculating news data deviation alright and again just a reminder not to trade every news data release or high impact news data release what we want to do is gauge sentiment right and potential forecast from big publications and also obviously establish the theme around what the market is potentially focused on so when you're doing a Google search right there is a news tab so when you first log on to Google you pretty start off with all do a search on England Bank of England interest rate hike right and it normally starts off from all what you want to do is go to the news tab and then if you go to tools and then you can have it basically come up with all of the the news regarding obviously the search and the tools you can sort by all the news recent the most within the past hour 24 hours etc right and sought by relevance but the point in this exercise is to gauge a little bit of sentiment as to what is happening now doing an interest a search on whether the Bank of England are going to hike interest rates you can see the headlines right so the headlines would be something like Bank of England policy makers split on rate hike you've got Bank of England expected this is by spy city a.m. Bank of England expected to keep path clear for May rate raise and then you've got Bank of England holds holds rates but split votes set the stage for May and it sounds looks like it's a interest rate hike and again bank votes it hints at interest rate rise right so you're getting some some headlines from big publications like the Guardian Telegraph C.E.A.M. CNBC BBC news right that there is a potential interest rate hike on the way right we're in March to one of the two and they're talking about May so with that being said we've established that they could potentially be a interest rate hike now what we want to do is really establish deviation now we're not going to do deviation on an interest rate hike but what we are going to calculate is just news deviation on a potentially any news event and you can use this on any news event but again if you want to increase your chances of a really good trade and for the news to really react when you're trading the news you want to establish a theme this is just for as an example of why you should be of how to really search you know sentiment and theme and themes on using Google so let's get into how to calculate deviation to trade the unexpected so before we get into calculating deviation first of all we need to understand what is deviation so deviation as described the definition is the amount by which a single measurement differs from a fixed value such as the mean right so the mean or the average right now if you don't understand that the best way to kind of describe it is to really just visualize it right so the amount by which a single measurement differs from a fixed value such as the mean so if we go to the trading economics website we have the non-farm pay rolls and this is done under forecast right and this average would be considered the mean right this this line this dotted line right now the deviation would be even though the description says a single measurement what we're looking for is a two measurements a high and a low right so the the deviation really is just the deviation from the mean so how high and how low right away from the mean right is what we would describe as deviation right so it's kind of like Bollinger bands if you know what Bollinger bands are where you have you can calculate one standard deviation two standard deviations etc right but what we need to calculate first is is we need to find an average and then what we're going to do is define the deviation high and the deviation low right and this basically will allow us to really trade news events where what we're trying to do really is we're trying to get to trade the news when it comes out and the news data that has the most impacts that are close to the deviation we are and especially if it goes past deviation the higher the impact or the more the impact it should have as far as the news right on the market right because if we're if we're forecasting right and this is the average and then prices let's say for example non-farm payrolls comes out and it's around the average even though it might be slightly positive or slightly negative it's still around the average what we're looking for is for really price to be to when it you know to in order to trade the news and to have a really you know for the market to really kind of be made potentially wrong-footed is for there to be a forecast of the news right and it might stay within the average but then the actual date of release comes out and it's either way above the deviation or way below us our standard average right and that gives us a great trading opportunity and it's not just non-farm payrolls this method can be used for pretty much any news events so first of all what we need to do is just calculate the average so the average figure we're trying to calculate is really the average difference between the forecasted data past forecasted data and actual data right and from there once we can calculate the average difference between forecasted data and actual data we can then calculate our deviation high and our deviation low so let's get into calculating the the average difference between the forecasted data and the actual data so first we need to go to our forecasted number and for this example we're still going to continue on with the example of the non-farm employment change and our forecasted number is a hundred and ninety K now we can use a news aggregate aggregate site and use aggregate site sorry it's useful as long as it has accurate data forex factory is the one I'm using for this example right so the next thing we want to do is go to detail if you're using forex factory and if you click on the folder it will give you the history I've obviously unpacked this already I've pressed in it already but if you do click on the for example the one above average hourly earnings you can click on this it will give you the history right but I've already done it for the non-farm employment change now the third thing we need to do is to calculate the difference between the actual data results and the past forecasted data for each month for the past you know nine to twelve months right and a negative or positive figure is not relevant so what I mean by that is and I've done this already on the left-hand side is we're trying to calculate a difference between for each month for the past nine months the difference between the actual in March and the forecasted in March and the difference between the actual and the forecasted was 108k the difference between 200k and 181k was 19k in February and so on and so forth right so just the difference between the actual and the forecasted so you do that for I did that for nine months and then what we do is we're going to add together each of these obtained of these obtained figures and divide the total number to get the average difference figure right so we're adding all of these numbers for the past nine months and then we're going to divide it by the number of months and then we get our 51k so that's the average difference figure right between what has been forecasted and what is actually come out now by calculating that this allows us to create our deviation high and low right because what the forecasts are telling us is what the economists how how wrong or right as an average the the economists are regarding and the data crunches are around you know when they actually forecast and when they're actually forecasting the news right so at an extreme end right they will be 51k either wrong either to the upside or to the downside and that's how we get our deviations so our 51k right so let's go back sorry so go back to the current forecasted news event which is 190k and add the average difference figure of 51k to the current forecasted data to get the deviation high and then subtract the average difference figure from the current forecasted news released to get the deviation low so again this is what we've just done if we look at it visually so we've got our news release of 190k we've calculated 51k to be the average difference figure over the past nine months right so this is where economists tend to be right or wrong or the deviation between the numbers and what is forecasted and what is actually the data that's actually come out right so at the extreme end if we add 51k we get 241 and that's our deviation high and a low end we've got 139k right and that's our deviation low now this is what we're basically looking for is for the news to come out and be somewhere around the deviation high or the deviation low now the closer to the high or the low or if it goes beyond the specific goes beyond the high and the low what we're anticipating really is is that is the market to react right is the really the market to to have more of an impact the closer it is and further beyond it goes the deviation high or low because what is being factored in if I get my tool again right if we get our high our low and this is our average what is being factored in is the previous number and this is if we have let's say for example the chart this is supposed to be negative and prices have been trending down this is a by the rumors are the fact potentially or the market is factoring in and pricing in this 190k right or an average of their abouts right they have actually maybe 10k 20k you know plus or minus now obviously our deviation over the past 9 to 12 months or 9 months in this case is 51k right so if the figures that are released are anywhere close to this number or even especially beyond this is what we really want to see is if it's beyond that number of is beyond the higher the low deviation that should have an much bigger increase in the movement right because these economists that do the forecast and these data crunches that do the forecast are have been you know basically wrong not only wrong-footed but you know severely wrong-footed right from the average so this is what we're we're doing and this is how really you should look to trade every news event and this is one of the reasons why when the data release comes out positive let's say for example that came out you know 195 right yes on forex factory you will see you know a green you know figure or red figure right and then people kind of automatically come out and say they press buy or they press sell yeah and what happens is is the market is you know is already factored in the fact that you know maybe 5k isn't outside of you know the normal right no number these numbers aren't perfect but we know that if it's outside of even close to 51k for example in this example then we know that we potentially have a higher chance or the impact of that number is more of the extreme end right and there should be some market movement right so this gets you into a trade but it also keeps you potentially keeps you out of trades as well if you have any questions just email me at info at trading180.com