Calendar Week 08-2023

 

Multiple inflationary reports last week points to higher rates still to come. Projections for USA are for a move from 4.75 to 5.5% over the next 3 meetings, and in Australia from 3.3 to 4.1% in the same time period.

 

US inflation this week came out higher than expected across Core and pipeline inflation numbers along with retail spending. This on the back of previous weeks hot job numbers show the US economy is not slowing, despite the rapid rise in rates and a debt ceiling Mexican standoff.

 

This week, Morgan Stanley’s Ellen Zentner said: “Our read is that a longer hold period is preferable to a higher peak, since it carries less risk of overtightening. The risks to our policy path, then, lie in both the timing of the first cut (later), as well as a shallower cutting cycle than anticipated.” ie that rates will peak at 5.25/5.5% but stay there for longer than expected, say past Christmas, and it will be a slow lowering of rates, not the plummet we saw during Covid.

 

The US stock market tried hard to ignore the bad news, but I think reality is starting to set in as VIX started to bounce. The only stock buoyancy on Friday was due to option expiry and the US long weekend.

Commodities had a tough time on Friday with oil tanking, natural gas stinking, coal and iron ore treading water with copper the only bright spot closing at the top of its 12 day range.

 

Bonds got spanked as yields ramped higher, with the Greenback following suit, strengthening all week with some profit taking ahead of the long weekend.

 

Currency Guidance

 

USD – Has broken through to the other side of the resistance zone, before retracing to sit on the resistance as now support level of 103.50. As the momentum is still hot on the daily, I would ideally like to see it retrace back to 102.30 support for better buying. With the US market holiday today, it might start to do that. If not, any sign of strong buying here would mean go with it.

 

AUD – Almost tagged 0.68 and you could almost see it as a buying signal. I think that would be a mistake. There is a resistance level here at 0.6880 and I would prefer to fade it off that.

 

EUR – On the 4hr chart it looks ideal to fade of 1.07 with the 50% Fib retracement of CPI high at 1.0708 offering something to lean on.

 

GBP – A tad surprised at the strength off the 1.19 level, making the bottom middle of the M pattern a stronger zone than anticipated. Could it be ranging now, from 1.19 to 1.24?

 

JPY – 1hr cycled nicely along the 50ema all week. Looking to be a buyer circa 132.90 now though, which would break the 1hr down for a short period of time.