Calendar Week 08 – 2022

 

The USA is on holidays today so it should be a quiet start to the week. Data wise, there is a bunch of PMI’s out this week from Europe and USA. Personally I do not put a lot of weighting on PMIs as they are only a survey of expectations, not hard data of what has actually been manufactured or serviced. Also, there is the Kiwi Central Bank meeting, with the RBNZ expected to raise again to 1%.

 

War Drums Continue to Beat

 

Commodity action was pushed and pulled between Ukraine news and Iran news. The former being risk off as war will tighten supply lines and impact oil reserves. The latter being risk on as a nuclear deal for Iran will release a large supply of oil.  West Texas oil bounced around between $90 and $96 all week. For its part, gold had 11 higher closing prices in the last 15 trading sessions, making six month highs at $1,900.

 

Over in stock land, it was moved around by Fed heads talking and the expectations of rate rises, stagflation and recessionary fears, along with Biden’s stance against Russia. The “Fear Indicator”, VIX chopped up and down between 20 and 32, closing at 27. As guide, when VIX is at 18 or lower there is little expectation of a market sell off. As you can imagine though, with all the news head winds, stocks finished the week weaker.

 

With rates, the US 10 year bond tested the 2% level before failing to finish the week at 1.93%. Market expectations of rate moves by the Fed have dropped this week, down to just a 25% change of 50bps move in March. Interestingly, the curve is pricing in rates up to 2% by mid 2023, then rate cuts to kick in as a recession hits and rates to be back at 1.5% by end of 2024.

 

Currency Guide

 

Price action in FX was very choppy, finishing pretty much sideways for the week. Commodity currencies in particularly were very frothy.

The Loonie moved in a 120 point range, closing just 30 pips lower. It will clearly be defined by oil price in the coming weeks. I do not see Russia backing down so it will be up to how the West resolve the Ukrainian request to join NATO.

The Kiwi traded 137 pips higher, closing up 104 pips for the week. It faded against major resistance at 0.6730, but with the RBNZ looking to raise rates this week that resistance could be broken.

The Cable managed to trade in a 159 pip range, closing up just 28 pips for the week. Has been sideways between 1.35 and 1.3650 for two weeks now, to me, it looks like it will swing lower from here though.

Aussie had a 242 pip range, closing only up 48 pips though. It is getting tricky to read and has to contend with local national election promises and grandstanding, against the US inflation/rate rises. Personally I do not see much upside with every push above 0.72 running into sellers.

Euro too has tried to push through 1.15 several times and failed. It had a 116 pip range for the week, closing lower by 24pips. It looks to be wanting to trade lower too.

Yen, stronger with all the risk off sentiment impacting prices. It had a 108 pip range, closing lower (stronger yen) by 42 pips. With the double top of 116.30 clearly in place now, and risk off likely to continue this week, I would expect the USDJPY to be pushing into the mid 113’s.