Calendar Week 22 – 2022

Last week the markets rolled over somewhat with a general bounce across assets. Bucking the trend is the commodity market which continues to push higher led by oil price of course. However, other assets rolled from recent trends with the stock market finishing the week higher, the first time in 7 weeks, and bonds also bounced with yields tumbling back below 3%. This led to a weaker Greenback, reversing its strong trend.

 

What led to this change we are not sure, although the China covid story is improving, risks still abound with inflation and supply issues. GDP data out of the US last week painted a poor picture and Fed Minutes confirmed 2 more 50 basis point hikes to come yet risk assets were bought. Not in a frenzy mind you, liquidity and volumes have dropped right off in the stock market, so moves are likely to be pronounced when not much volume available. However, it seems the market is now looking past the two hikes and that there will be no more after that as cuts are starting to be priced in as early as Feb next year.

 

Economic Data ahead

 

Week ahead is busy with holidays thrown in too. The US is observing Memorial Day on Monday so we won’t get a lead from them until Tuesday night, whilst the UK is closed Thursday and Friday for Spring break and Queen Liz’s Platinum Jubilee. Amongst this we have Australia’s Balance of Payments Tuesday, GDP data on Wednesday and Trade Balance Thursday, finishing up with Home Loans on Friday. Across the Pacific we will get the US consumer confidence on Wednesday, manufacturing Thursday and Employment Friday, along with Canadian interest rates expected to jump from 1% to 1.5%. Europe will be focused on inflation with data coming from Germany, France and Europe as a whole on Monday and Tuesday.

 

Currency Guidance

 

Last week we thought the Euro might push higher, but was unlikely to. We were half right and it has come back to tag and stop at the 50ema. It also pulled up at the 50% fib retracement from the last 50ema touch, that level was 1.0767. We are waiting for a clear selling indication, a strong seller bar from here to get short again. Euro area continues to lag as they battle Russian sanctions and heavy QE. They need to balance raising rates to slow inflation without killing their weaker coastal members of Italy, Spain and Greece. Tricky to be sure.

The Aussie did pause on the 71 cent level for a few days but pushed higher on Friday off Uncle Sam’s weaker currency. It closed just shy of 78.6% Fib retracement and the 50ema. The market has turned off this 0.7180 level several times in the last 8 months and we could see it happen again. Like the Euro though, we wont be jumping the gun and will wait to see if the sellers are keen to push it lower from here first before we jump on.

Sterling was one of the poorer performers last week, losing ground to all its peers apart from the US and Yen. Technically it should remain weaker however with the Jubilee on this week, the influx of Royal watchers spending and the sense of good will around Queen Elizabeth might see the pound gain the lost ground. I think it is a watch and observe week for this one.

The Yen looks to have retraced to the ema and paused but it is still 200 pips above decent support. Fundamentally its better to be short Yen this week but it will be really all about the Greenback and where it will track. Keep an eye on the Dollar Index (DX) for indications on how the Yen will go.

The Loonie is in a right battle between the US dollar and oil price, making the chart of the Canadian currency a horrible one to look at. It is back in the consolidation area of 1.24 -1.29 that it has pretty much been in since July last year.

The Kiwi reversed back to look at the 50ema and also the lows of January after raising rates to 2% last week. RBNZ also raised its cycle forecast from 2.8% to 3.9%, peaking as soon as February 2023.