Calendar Week 18 – 2022

We have a very busy week ahead of us with Central bank meetings, statements and job numbers. All week we will have news hitting all the majors bar Yen and Euro, with Tuesday and Thursday being the highlights. China and Japan are closed for holidays for most of the week, adding to the volatility.  On Wednesday we get employment numbers from New Zealand along with their Reserve banks bi-annual financial report. To finish the week we get employment figures from both Canada and United States.

 

Reserve Bank of Australia

 

Tuesday see’s the Australian Central bank announce the official overnight interest rate. With inflation now at 5.1%, well above their target band of between 2 – 3%, the RBA are expected to raise rates to 0.25% from the current 0.1%. Bond markets have priced in an 87% probability of this happening tomorrow, and interest rates to be at 2.5% by the end of the year. Whether the move or no, later in the week we get a clearer picture of the RBA’s thoughts with the quarterly release of their Monetary Policy – a view of economic conditions and projections.

 

FOMC

 

The US Fed has completely dropped the ball in terms of controlling both the narrative and the economy. Playing catch up never ends well, they should always be ahead of the curve. With inflation persistently high now, currently 8.5% – not seen since the ‘80’s, they should shock the market with a big jump in rates. The Fed has signalled a 50 basis move from the current 0.5%, however the bond market has priced in a 40% chance of 75 point move. Thursday morning (Sydney time) they will announce rates but the following conference at 430am will be where the volatility lies.

 

Bank of England

 

The Poms have raised rates at the last three meetings and are expected to go again to 1% on Thursday night Sydney time. Unlike the Fed they have been ahead of the curve and I expect this move to be their last in this cycle. Growth forecasts and inflation are signalling the UK has reached its appetite limit for rate rises so the key here will be the vote numbers, how many will vote no change will indicate that the BoE will rest for a while post Thursday.

 

Currency Guide

 

The Aussie dollar is stuck between being stronger off the imminent rate rise and strong iron ore, against a shrinking China (weekend manufacturing figures in major contraction thanks to covid lockdowns), weaker copper and the increasing chance that we will have a change of government. It is sitting precariously close to major support level of 0.7000. It is also a key psychological level. I suspect it will hold, for now, and get a minor bounce on the RBA news to only retest it on the FOMC news.

 

Despite the Euro being at decade old major support zone of 1.04 – 1.05, there is no reason to be holding long Euro positions for any extended length of time. The Greenback will dominate as the Fed pushes rates higher. The ECB has jawboned that they need to move to curtail rates but are the most hesitant in doing so with all the risks around Ukraine and energy markets in their face. Expect a minor bounce before further falls. Below 1.04 there is no technical support until 0.96 but there might find some psychological buyers at parity of 1.00.

 

The Cable faces similar issues to their neighbours across the channel, and I expect the pound to perform as such. A relief rally would be nice so we can get short off resistance at 1.28. Below 1.25 the next support for is circa 1.22.

 

The Yen faded a little last week but with the US dollar dominant it was short lived. Still it is hard to sell the pair and risky to buy at these levels too.

 

The Loonie is now across the range and testing major resistance at 1.29. FOMC again will be key here as to whether the line (and range) will hold and it fades back across to support at 1.25. Above 1.29 next resistance is 1.33.