Calendar Week 09-2023

 

As inflation weakened throughout the last half of 2022 everyone was talking about and positioning for a Fed “pivot”. That narrative is now dead after yet another week of indications that the US economy is still booming. I am even seeing talk of 6% rates, up from the 5.25% current projection.

 

The smart money saw the writing early as bond yields turned at the start of February, stocks only have woken up to it this past week, finally turning south but has some catching up to do still.

All of this puts a lot of focus on the key US events in March of; Jobs March 10th, CPI, March 14th and FOMC March 23rd.

 

The Fed has kept their narrative the same, they are data dependant and will not be lowering rates until the data shows inflation back under 3%. We are far from that level and with recent figures (retail sales, jobs, wages, consumer spending) all showing heat, I would not be surprised with another higher CPI print mid-month.

 

With the US economy raising rates and the Greenback also enjoying the status of a safe haven asset as stocks stink and sink, the US dollar dominance is far from over and should be seen resurging to Sep ’22 highs.

 

This in turn exports inflation globally as the Greenback is required for most international transactions, from oil to equities, especially hurting emerging markets. Commodities such as copper and wheat were smashed last week as the cost expectations of higher dollar hit emerging markets.

 

At some point global rates will catch up to the USA as they too battle inflation and the US dollar dominance will come under threat. Combine with stock market bouncing and safe-haven unwinding, only then would we expect US dollar to weaken significantly. However, that horizon is not in 2023. I would say mid 2024 at best.

 

Currency Guidance

 

USD – No retracement I wanted and is now well overheated it is time to be patient and wait for the next cycle. A pullback to 104.30 (minor support) or 103.50 (major support) and bounce is what we will be looking for.

 

AUD – Got a good towelling but should see a bounce back to 0.68 area which is where I would look to fade it again.

 

EUR – Our sell of 1.07 did well and we continue to look for fading opportunities. This week I like the level of 1.0615 to short off.

 

GBP – A choppy frothy mess to try and trade and I prefer not to trade in the whitewash. If I had to, 1.20 looks to be decent resistance to fade it from.

 

JPY – New BOJ head comments on Friday of his preference for low rates and low yen, sent Yen tumbling. Might not get any Yen buying now, but I would prefer to trade this pair off support which is back down at 135.20.