Calendar Week 33-2022


US inflation numbers last week showed that it may have peaked with both CPI and PPI coming in weaker than expected. Along with the previous weeks jobs numbers the US stock market was panic bought all week with the view that the worst is behind us.


However, numerous Fed heads all came out singing the same tune, that inflation is still too high and rates are going to be going higher to combat that. This in turn sent bond yields higher too with the key 10yr rising from 2.5 to 2.9%.


Who will be right, the stock bulls or the bond boys? Usually, the bond boys are.


Looking ahead this week we have the Kiwi’s raising rates again to 3%, UK inflation numbers to double digits, FOMC minutes and Australian wages and jobs.


Currency Guidance


We note that with rising rates (again) but also commodity markets ticking higher too, supporting the commodity currencies. Europe and UK are suffering from surging energy prices and now the key transport route of the Rhine river drying up, bottlenecking supply lines adding to the woes already suffered, we expect further weakness in those currencies. This gives us good divergence to play with, being short EUR or GBP and long commodity or US interest rates: NZD, AUD, CAD and USD.


AUDUSD broke through the neckline at 0.7030 and the shorts capitulated. Momentum indicates it is close to overbought so would expect it to retrace and test the neckline this week. It will be data dependant though, with the mid week FOMC and local jobs providing some volatility and opportunity.


EURUSD broke above its month long range to test the lows of May and June circa 1.0350, and failed. Fading it off here back to parity looks to be the higher probability trade.


GBPUSD failed off the neckline at 1.2270 and facing headwinds with European woes. Mid week inflation numbers will not help it either as I suspect it will be double digits for them. Happy to be short the pound everywhere.


USDJPY bouncing around madly and hard to see where to now. As wrote last week, I suspect it to chop into sideways market for the time being.


USDCAD is just a nasty chart to look at technically. Only saving grace is the weekly wide equidistant rising channel, if you really need to be in the Loonie.


NZDUSD like the Aussie, the Kiwi has broken its downtrend. It too is overheated for now and should retrace to mid 0.63’s this week but there is the mid week rate rise to contend with.