Calendar Week 30-2022

 

Inflation in the UK and Canada is up and the ECB surprised with 50 basis points hike, whilst PMI’s missed and media advertising spending shrinks. This is the main news from last week.

 

Whilst the inflation numbers are no surprise in the current environment, the ECB’s move was, yet the Euro still cannot find sustainable buyers as risks continue to weigh on sentiment.

 

Meanwhile, US earning seasons has continued the theme of “the bad news is not as bad as we thought” so stocks were bid higher to close the week out. The week did finish, though, with some selling as tech stocks were shaken by Snap reporting reduced income from advertising spending.

 

Bond traders were bullish, sending interest rates lower as recession fears loomed closer. This weeks FOMC meeting is almost zero chance of 100 basis points and even 75 basis points might not happen now. It will be a very tricky meeting to balance the tipping point. If commentary and settings are too hawkish then a hard landing into a recession is most likely, too dovish and credibility along with inflation will remain out of control.

 

Currency Guidance

 

The US Dollar Index closed unchanged for 3 of the last 4 days as it fluctuates from opposing forces of weaker US bonds and safe haven buyers. Looking forward this week will be treading water until the FOMC meeting, and extended directional moves either way will be hard to come by. Best to sit on the sidelines until forward guidance becomes clearer post FOMC. Some of the major crosses might be a better place to focus on, and some strength from safe haven flows into the traditional JPY and CHF markets.

 

AUDUSD had a look at 0.7000, coming within 21 pips of the resistance before settling at 0.6925, technically it looks to be a good fade from here back to the June lows. The concern is the USD side of the trade might not give us the strength for the move to happen. Perhaps look to fade the Aussie against a stronger safe haven cross.

 

EURUSD didn’t get within cooee of the neckline, not even with the aggressive ECB move. Certainly do not want to be a buyer, but staying away from US dollar this week brings the crosses into play such as EURJPY.

 

GBPUSD held up against the US and commodity currencies but lost ground to safe havens. Also struggling to buy this currency and like the others, would be a seller against the Yen or Swiss.

 

USDJPY found some buyers as risk sentiment came off and safe haven flows into the JGB’s finally turned the Yen around. As long as stocks weaken and fear remains the Yen should continue to be bid.

 

USDCAD is a nasty looking chart to be honest, just not interested in that risk. In the crosses it looks to be reversing course too as oil and commodities come off.