Calendar Week 25-2022
Last week the market pretty much trod water waiting for the US FOMC meeting. It needed to take a breather after the hectic sell off from the inflation numbers.
FOMC Meeting
The Fed raised rates by 0.75% and there was some “buy the rumour, sell the fact” happening as US dollar ran higher leading into FOMC but has weakened since. I would have preferred to see a 100 or 150 basis points move by the Fed, to shock and awe the market. 75 was pretty much expected. Stocks and currencies are little changed from before the meeting, albeit closing down on the week due to the selloff leading into it. In the presser Powell blamed everything for their failure apart from himself, and even now suggested that he is not seeing weakness yet in the economy. He monitors consumers closely as consumer spending makes up over 60% of the GDP and he thinks they are well positioned to handle the inflation and interest rate rises. Not sure what he is looking at to think all is good, retail sales numbers came out just a day before FOMC and printed negative!
Other things to note last week was the ECB surprise meeting to combat the fragmentation of Europe as bond markets across the PIGS spiked. They will do what it takes to avoid the break up of the Euro and so the QE continues whilst inflation runs rampant. This week we get the UK inflation numbers and it is expected to hit double digits!
Also need to mention the selling in stocks. Friday saw a lot of option expiry in the US which contributed to the selling, however last week was still not yet panic but there was capitulation as the volume was broad and across the market, everything got hit. Added to that was a report from Goldman Sachs noting that last week was the 2nd largest selling by them since 2008. Net they were 83% short selling. The smart money looking for far further falls?
Week Ahead
US is on holiday Monday but then we see a few talking heads, namely RBA and US Fed along with inflation from UK, Canada and Japan. There might be volatility around the inflation figures but also from Powell’s testimony to the Senate Banking Committee.
Currency Guidance
AUDUSD closed in a weak position on Friday however there is a double bottom formed from lows in May and June. I suspect that it will be broken in time as safe haven flows continue to seek US dollars but this week might be one of consolidation and even a minor relief rally. Still favour fading any such rally and also favour sticking to the shorter timeframes as longer timeframes will get hit with the swings and roundabouts of one headline to the next.
EURUSD finished the week better off than the Aussie thanks to ECBs intervention. Also has a similar double bottom and again we could be in for some consolidation or minor rally 1.0650 area. Similarly look to fade it off resistance there and favour the shorter timeframes.
GBPUSD I can’t get excited about trading Sterling, and with the inflation numbers due mid-week I suspect it will get volatile. Minor resistance at 1.25 could be a place to fade the Cable.
USDJPY A lot of talk about the market breaking the BOJs mandate as selling of the Yen has become a sport. Inflation numbers are not till Friday so look for buying opportunities in lower time frames as the Yen pushes through recent resistance at 135.00
USDCAD Is overbought at recent previous high of 1.3077 and with oil off slightly this one could go anywhere from here. This is the top end of the range it has been in since July last year. It would be a brave trader to sell this back across the range from here though.
NZDUSD read the same as the Aussie for the Kiwi, double bottom, consolidation, fade rallies on the shorter timeframe.
