Calendar Week 07-2023

 

Stocks finished the week weaker but still at elevated valuations. Whilst bonds spent the week tracking higher and US dollar followed suit. Over in the UK, the GDP missed expectations, coming in at -0.5% for the month. Whilst Canadians saw their best job numbers since 2006.

 

So North America jobs are not being curtailed as the Central Bankers want. They are trying to curb jobs growth and therefore wage growth which in turn should curb inflation. It is not happening yet. We will see by how much on Tuesday when we get the US inflation numbers. Suffice to say, the figure will be highly anticipated and create a lot of volatility.

 

Also suffice to say, that the US Fed will keep raising rates and no pivot will happen this year. Not when you have jobs numbers like that coming in. They have shouted it from the rafters for months now and the stock market has been ignoring it.

 

The bond market too presumed a pivot or at least a peak in rates. They are now starting to price in reality, that rates will go over 5% in the US, maybe even push closer to 6%. Currently they are sitting at 4.75%. So more to come and will stay higher for longer than expected.

 

The new normal of low rates and cheap money that we had for a decade is well and truly dead. How that effects asset classes and growth should be plain to see. With cheap money, bonds were on the nose whilst stocks and houses were hot items. With expensive money, the opposite will happen. Housing will tumble as will stocks and bonds will be the attractive option for investors.

 

For us FX traders, the search for yield comes in the form of getting the direction right and not fussed about the direction, as long as it is moving there is opportunity for a return. The movement now, will be stronger US dollar.

 

Currency Guidance

 

USD – Has done what we wrote last week, however it remains on the 50ema at resistance with momentum indicator still quiet hot. With the inflation numbers out Tuesday night, I think it best to wait for that before committing to a direction. Fundamentally I see stronger USD though.

 

AUD – No reason to be buying Aussie right now with commodities coming off. Against the US it will flip flop until the CPI print. A strong inflation number from the USA will see the Aussie heading to 0.67.

 

EUR – It too should struggle for direction Monday and Tuesday. Momentum is extended but when data comes out, indicators are of little use to us anyway. Still targeting 1.03.

 

GBP – After the poor GDP print, the Cable is poised to tumble through 1.1850.

 

JPY – Market still trying to come to terms with the change at the top of the BoJ, what it means for policy and prices. We are in a min uptrend of higher highs and lows. I suspect we will see this trend to continue with first resistance circa 134.30.