Calendar Week 27-2022

 

What inflation? The market, for no discernible reason, decided on Friday that inflation is no longer the important issue, but the looming recession is. OK, they are probably correct in doing so cause the recent economic data certainly suggests we will be in recession globally next year. However the aggressiveness of the moves on Friday I think is more about a lack of volume/liquidity as US traders took to the roads for an early long weekend, so the moves were heightened.

 

Overshot

 

Globally the bond markets tanked into the close of the week and it seems to be fully priced in the policy error of the USA. Will the Fed reverse their policy quick enough? Their track record would show probably not. Market forces have been doing a better job than them at curtailing prices. We expect that the RBA will do one more raise this week and wait and see the outcome but I also suspect that the FOMC (July 28th) will also raise rates and overshoot. This will put the USA in the precarious position of high inflation, high interest rates and low growth – otherwise known as stagflation – and a recession all but guaranteed.

 

July 4th

 

The USA are on holidays today so it will be a quiet start to the week. Tuesday brings the RBA decision and it is forecasted to raise by 0.5% to 1.35%. Not the biggest move I have ever seen but would be the biggest in effect as it is effectively a 58% increase. Thursday we will see the minutes from the last FOMC meeting which could provide some volatility and forward guidance, and we finish the week with US job numbers. That is enough news to keep the market guessing and moving.

 

Currency Guidance

 

AUDUSD was under pressure all week and collapsed on Friday as commodity markets continued to get pummelled, led by iron ore and copper. It broke through the support level at 0.6850 and tried to bounce to retest it but could not. With the RBA raising rates this week I suspect we will push back above the support but it won’t hold. The commodity markets will have more say on the Aussie then Dr Lowe.

 

EURUSD was the surprise last week, holding onto the double bottom support level of 1.0350. Technically it has formed a Head and Shoulder Continuation pattern here with 1.0350 being the neckline. That suggests if the neck is broken, then there is a 400+ pip fall to come and the Euro could be looking at parity to the USA before the end of the year.

 

GBPUSD is in all sorts of strife and whilst it bounced into the close on Friday I see that as an opportunity on the shorter timeframes to get a sell trade on. The bounce failed at resistance of 1.21 and as the market fades off that level (general advice only) I think trading with it lower could yield good returns.

 

USDJPY seems to have slowed down and technically looks like it could fall back to circa 130. However, for that to happen would require both the USD to weaken significantly (unlikely with the Fed raising rates) or the Yen to strengthen (which is possible). Either way it would be a trick retracement to trade.

 

USDCAD choppy, frothy, messy. Trading this one is a good way to loose good money. Consistent direction hard to find.

 

NZDUSD like the Aussie this broke major support and has more downside to come. Fade any bounce back to any resistance levels.