Calendar Week 20-2023

 

Last week saw US inflation come off a tad but still a long way to go. The US Fed heads (Governor Bowman) are still talking of higher rates. There is also the issue of banking crisis still lingering, in fact getting worse. And the big one this week, the US debt ceiling.

 

Pac West bank reported 10% of deposits left their coffers in the week prior alone. If it is happening to one regional bank, you can be sure it is happening to a lot of them. This in a way has the same effect of rate hikes as Pac West (and therefore potentially all US regional banks), with less capital available, cannot issue new loans. So, business cannot expand. Further out, if regional banks collapse, that sends a terrible message to the world of the state of the US financial system and economy.

 

Then there is the US debt ceiling. Factional fighting between the two political parties is delaying a deal to raise the ceiling…again. For fun, why don’t you google “US debt ceiling chart”. This happens almost annually around this time of year. The US Budget Office projects the government will run out of money early June. So time is of the essence as a US default on its debt is not something the world markets want to see. But the risk is high. In fact it is the highest it has ever been.

 

President Biden is scheduled to sit down with the Republicans Tuesday this week. We have seen this many times and do not believe a deal will not be made. It will settle, but at what cost to the Biden administration and US economy remains to be seen.

 

Aside from that risk event, there are a number of US Fed heads talking this week, ending with Powell on Friday. Canadian Inflation numbers, UK and AU job numbers are also due this week.

 

Currency Guidance

 

USD – With stocks starting to price in default risk and recession risk, safe havens picked up this week. Some consider the big tech a safe haven as Amazon and co all out performed. So did the US dollar with bond yields up across the board. Kinda odd that US default risk rises and money flows into US bonds and currency, but that was the story this week. The stronger Greenback punished commodities too. The dollar index broke out of its 5 week range and is over heated on momentum indicators which (news aside) usually suggests a retracement will soon occur. We might see that Monday and Tuesday, a pullback to 101.78 from the current 102.27, upside the next resistance is at 103.

 

AUD – Surging dollar smashing commodities, an ineffectual budget, ineffectual central bank, ineffectual government, wage rise negotiations amidst rampant inflation. Have said for months now, absolutely no reason to be buying AUD for mid to long term goals. Having failed to push through 0.68 for third time in 2 months, this is tracking across the range to support level of 0.66. Personally, I do not see it holding. Our interest rate differential against all peers puts the Aussie battler into sellers crosshairs.

 

EUR – Not yet a technical downtrend but it is under the 50ema. Expect a small push back to 1.0950 and look to fade any rallies. Support levels do not kick in until the low 1.05’s

 

GBP – Back down to the support level we wanted to look at for buying opportunities. However, with so much going on for the US dollar this week, I would be cautious selling it.

 

JPY – Last weeks swing did not eventuate, but now it is setup again for the run to 137.50/138 resistance level.