Calendar Week 31-2022
The Fed’s preferred inflation guide ticked higher on Friday as the month came to a close, and what a turnaround the month has been.
From fear of inflation and recession causing a sell off in stocks and commodities to flipping into fear of recession causing a panic buying in stocks and some commodities. This “bad news actually means good news” buying saw the US dollar also reverse its trajectory.
The narrative seams to be that because we are in a recession then this is the bottom and it cannot get any worse so now is the time to buy. If things do get worse then the Fed will always step in to help by cutting rates and unleashing more QE, providing cheap money to push assets even higher.
Markets do look to the future and price it in, these days it just happens faster, so they are looking beyond the peak in rates this year and gearing up for an economy bouncing back. With that in mind though, a few days of selling along with higher inflation and a hawkish Fed another, down leg will come fast and sharp.
This week we have 3 major news releases. The RBA (expected to raise by 0.5%) on Tuesday, the BOE (expected to raise by 0.5%) on Thursday and US jobs report on Friday. We will also start to hear from FOMC members again so keep an eye out for their comments and guidance.
Currency Guidance
The US Dollar Index is right back on support at 105.50 and is at the tipping point where it could run either way. Fundamentally it looks to be weaker but technically it is not a downtrend until it breaks below 103.20.
AUDUSD with commodity prices on the rise again, the Aussie could catch a bid, however it is already close to overbought territory and is leaning into resistance at 0.7000. Fundamentally, without commodity support, there is no reason to be buying the Aussie this week, even with the RBA hike. Choppy conditions ahead I think.
EURUSD speaking of choppy, the Euro is stuck in a mini range of 1.01 to 1.250, and even with the Greenback weakness couldn’t break higher to major resistance at 1.0350. Whilst Europe is a mess and I wouldn’t want to be held owning anything Euro for too long, maybe it has the cajons to test the major resistance this week. If not, fade it any day.
GBPUSD is also leaning against a resistance level and back at the 50ema. Unchanged for a few days and I suspect we will see more of that this week before the BOE meeting.
USDJPY moved lower, catching many a short yen traders out – and there a lot of them. Will the hold or even try to turn it, or will the exit their positions and thereby increasing the strength of the down trend. Support is 200 pips away at 131.30, and a break below that would indicate a new down trend confirmation. However it has come too far too fast to warrant that this week. I suspect a minor bounce into the mid to high 135’s before having another crack lower.
USDCAD how any trend trader can make money on this pair is beyond me and all good luck rather than good management.
