Calendar Week 29-2022

 

NZ raised rates by 50 to 2.5%, Canada raised by 100 to 2.5% too, which surprised the market somewhat. US Inflation was up 1.3% to 9.1% and Australian unemployment fell to 3.5%. Chinese GDP fell but retail sales in China and USA both came in stronger with US Consumer sentiment also printing higher.

 

All in all a mixed bag of signals and that was reflected in swings in price action across all assets. Overall things ended the week weaker but bounced Thursday and Friday. This was seen in commodities, stocks and currencies.

 

Ahead we have a number of points to focus on. US stock earnings reports begins in earnest this week, and there will be several talking heads outside of the USA as the FOMC is in blackout leading to their meeting next week. Wednesday brings UK and Canadian inflation numbers. Thursday is the BOJ report and ECB interest rate decision – which is expected to raise off 0% for the first time since March 2016. Friday ends with PMI’s from Europe and USA.

 

It is very murky conditions, with predictions and opinions differing wildly as to what will happen and what direction to take. Personally I think we are on the crest of the inflation peak and rate hikes. How long the crest will last before tipping over could be months, so investing or trading for a long term view – anything over a week or longer – gets very tricky. For me, the focus should be on short term moves and try not to be in the market more than a few days tops. Even better a few hours at most.

 

Currency Guidance

 

To me it looks like the US 10yr bond has peaked and already priced in the top of the US Fed rate rise. I am not sure it will be bid any higher, it might get a little spike if the Fed raises by 100 basis instead of the much backed 75. However, the bond market is already moving towards lower rates and therefore the US dollar dominance should coming to an end. Even more so as safe haven flows dissipate. The antithesis of this is that risk comes back off due to some unforeseen event, but we will deal with that if and when it occurs.

 

AUDUSD with weaker commodity markets and demand for its produce the Aussie should be led by the Greenback. So it will see moderate gains but not because of stronger demand for the Australian currency, more because of the weakness in the US dollar.

 

EURUSD with the ECB raising rates for the first time in 7 years, along with a good bounce of parity and weaker US dollar I expect the Euro to head higher to retest the neckline at 1.0350.

 

GBPUSD fundamentally it is hard to be positive for the Poms, yet technically the Cable should find support this week. With inflation data due mid week this one is one to be short term scalp trading.

 

USDJPY no end in sight for the weakness in the Yen, and like the other majors will be driven by what the Greenback situation unfolds. That said, it could do with a retracement back to 137.75.

 

USDCAD still a dogs breakfast and one to avoid trading.

 

NZDUSD even after raising rates the Kiwi could not muster a decent bid. Lacking the liquidity of the other players above is why I avoid this currency.