Calendar Week 06-2022

 

This week we have some confidence measures from Australia and the British GDP rate, but all eyes will be on the USA inflation number due Thursday night. The CPI figure has the potential to provide the most volatility this week. Expectations are for a tick higher than last print of 7.1, to 7.3%. It is staggeringly high, and market has now priced in a 50% chance of 0.5% move by the US Fed in March, with chatter of seven 0.25 basis moves this year.

 

The Bank of England jumped rates up another 25 basis points last week, following their 0.25% move last month. The BoE was 1 vote shy of moving 0.5%. Central banks globally are starting to move in earnest. The ECB failed to move last week but turned from neutral to hawkish in their guidance which spurred some panic buying in the German Bunds and Euro dollar. Whilst back in Australia, the RBA’s belated move to stop massaging the bond market has put them behind the curve. OK, Australia’s inflation numbers are within the target band of 2 – 3%, unlike say the USA, but the longer they sit out of the hiking cycle, the more expensive financing will become for Australians and so when the RBA is forced to raise rates they will have to do it in big chunks.

 

Monetary Policy Divergence

 

Due to this divergence in monetary policy, the Aussie dollar was the weakest last week, losing ground to all of its major peers. Particularly the Aussie lost out to the Eurodollar to most. The expected bounce back to 0.71 came a lot quicker than I surmised last week, but it also rolled over quickly too, fading back under 0.71 by the end of the week. Looking ahead, the only bright spark for the Aussie is commodity prices, whilst it has head winds against the RBA and Canberra shenanigans. With the Federal election looming and a predicted change of government to Labour (not known to manage economies well) the Aussie dollar will continue to struggle. I expect the 0.70 level to be broken this week and perhaps even test 0.69.

 

The Euro too moved more aggressively than anticipated, with the sellers disappearing after Lagarde’s press conference on Thursday and not stepping back in until the US jobs data. The sellers appeared at January highs of 1.1480, creating a temporary double top. Having exploded quickly I suspect the resistance at 1.1480 might hold this week and the Euro to consolidate between the resistance and support at 1.1370.

 

The GBP looks a little lost. It did tag our target of 1.36 but it too has rolled over. Having produced a higher low in early Feb, I’d like to see it push further and create a higher high above 1.3750. To do this would require more USD selling though.

 

In Yen land, technically has a Head and Shoulder pattern in place but it is threatening to break out of it and a move above 115.50 would see that break. Still tricky to see from a fundamental view, so I would be looking to be a buyer of USDJPY rather than seller this week.