Calendar Week 43-2022
After a week of choppy directionless trading the market took a lead from a WSJ article hinting that the Fed is close to finishing their rate rises. 75 basis points is locked in for the meeting next week, but after the article suggests the Fed will slow down. This is what the market has been waiting for and risk off took off.
Added to this was the Bank of Japan intervening in the FX market, selling US bonds (they are the 2nd largest holder) and buying Yen to strengthen the currency and lower prices at home for households. Being a small island that imports a lot of products the weak Yen has sent cost of living in Japan sky high.
Commodity markets remain weak and stock markets loved the Wall Street Journal article, giving them a reason to start buying. The yield curve pricing a peak in rates at December of 4.75% before a potential rate cut in Q2 2023. The Fed members are now in media lockdown so we will not hear from them until the FOMC is over on Nov 3rd, leaving the market to its own guidance, which is usually bullish for stocks.
A fun week ahead with Aussie inflation and Chinese GDP on Wednesday, followed by Bank of Canada (expected 0.5% move to 3.75%) and ECB (expected 0.75% move to 2%) on Thursday with US GDP to finish that day. Friday will be the BOJ, no move on rates but expect further buying of yen to support local consumers.
Currency Guidance
USD – I am still on the fence after my move last week. It is always a dangerous time shifting from one direction to the next. Rates may have peaked, may not, we do not know for certain yet but we are most likely close to it. But we are far from rates falling and the USD is also the current safe haven asset of choice. So I will wait until I get a clear technical picture that matches the fundamental one that USD buying is finished.
AUD – Aussie finished Friday as the strongest currency in the Majors. A minor bounce in commodities as markets took the WSJ article to hear that the global economy will soon boom again and Aussie resources will again be required in large numbers. It is on track to move back to the average against all peers.
EUR – The ECB move later in the week should support higher prices but until then I suspect the EUR will be pretty choppy, making it hard for trend traders to get a decent trade on.
GBP – No reason to buy the Sterling but none of the charts indicate a good selling point either. Still staying out of it.
JPY – Kuroda had a bit of fun on Friday. Last time he did this in September, the market did not follow him and buy as well. In September it was at 145, last week it was 151. Next month what, 170? As global rates tick higher, the BoJ become increasingly isolated with their negative rate stance, making it hard to find a reason to buy Yen.
