August 2022

EUR/USD ranges this week as written Sunday were: 1.0298 to 1.0175. EUR/USD traded 1.0268 to 1.0122 or a 53 pips drop from 1.0175. Next week aligns as 1.0273 to 1.0150. What changed? 25 pips. We're looking for the close around 1.0150 then long again for next week. Big break for higher last week was 1.0420 and next week 1.0396. Oversold EUR/CHF at 0.9688 assists EUR/USD longs next week to target 0.9800's. EUR/JPY's big break at 136.95 broke below Monday and traded 200 pips to 134.93. Next week, 136.82 is the deciding factor for EUR/JPY shorts. Overall range is located from 137.15 to 138.16. Oversold EUR/CAD traded 113 pips higher then dropped 158 pips. The Friday close around 1.3088 would assist again to EUR/CAD longs and further help EUR/USD higher. EUR/NZD approaches 1.6297. A big drop is required for EUR/NZD longs next week or EUR/NZD is placed last to overall trade rankings. EUR/NZD traded its best day yesterday since last Wednesday at 295 pips higher. Last Wednesday traded 235 pips lower. No progress to EUR/NZD except trading normal ranges. EUR/AUD traded 322 pips this week and traveled straight up from Sunday at 1.4392. The move was required to alleviate severe overbought… Read More »FX week ahead: EUR/USD driver pairs are EUR/CHF and EUR/CAD

The story into the end of the week is all about a repricing of Fed expectations. The market had been all excited about that recent softer US CPI read and tried its hardest to pressure the Fed into a more accommodative message. And yet, this hasn’t been the case.

Summary With much of the world shunning Russia, countries have turned to the United States for the supply of key commodities. In this short special report we detail how Russia-related supply issues are helping propel export growth and are contributing to the normalization of the U.S. trade balance. U.S. export growth has started to turn a corner, with real goods exports outpacing imports amid a sizable lift in exports of industrial supplies & materials specifically. A look under the hood of recent industrial supplies strength suggests the gain was very much tied to goods that have been at the forefront of supply bottlenecks due to the Russia-Ukraine conflict. Categories associated with natural gas, oil and fertilizer accounted for nearly 70% of the gain in industrial supplies exports in June alone. Russia was previously a large supplier of solid fuel and natural gas to Europe, but as much of the world shuns Russia, the United States is helping to fill the gap by supplying more of those goods than it was before the war. According to the EIA, the U.S. became the world's largest liquefied natural gas (LNG) exporter during the first half of the year and data suggests the U.S.… Read More »Conflict of interest: What Russia’s war means for US exports

Australia is expected to have added  25K new jobs in July. The sour market’s sentiment favors a bearish run on a dismal report.  AUD/USD is technically bearish and could extend its decline towards the 0.6850 price zone. Australia will report July employment data on Thursday, August 18. The country is expected to have added roughly 25K new jobs after gaining 88.4K in the previous month, while the Unemployment Rate is foreseen steady at 3.5%. Additionally, the Participation Rate is also seen as stable, at 66.8%. Wages remain well below inflation Ahead of the release, the aussie got hit by a key employment-related report, the Q2 Wage Price Index. The Australian Bureau of Statistics reported wages were up 0.7% in the three months to June, while the annual rate growth was 2.6%, slightly below the 2.7% expected. Still, it is the highest annual rate of growth since Q3 2014. Raising labor demand maintains unemployment at healthy lows, yet wage gains are still lagging behind inflation, which means that real wages are still going backwards. According to the latest official data, the Consumer Price Index stands at 6.1% YoY, more than doubling salaries’ gains. Poor wage growth undermined demand for the Australian… Read More »Australian Employment Preview: No surprises on solid job creation

The dollar has corrected around 3% from its highs seen last month. This has prompted a few questions about whether the dollar has peaked? Many trading partners would hope that to be the case, but the reality is that the Fed is likely to stay on track with its tightening. We think the dollar is more likely to retest its highs than correct much lower. Driving this view has been consistent rhetoric from the Fed that it will not be blown off target by some softer activity or price data. In fact, it now looks like US activity is accelerating again as lower gasoline prices leave more dollars in the pockets of US consumers. The 2023 US recession narrative looks a tough one to sell near term. And rising energy prices should continue to drive a wedge between the exporters of North America and the importers of Europe, meaning a much greater conviction of a recession in Europe. The ECB’s second 50bp rate hike on 8 September may well conclude its tightening cycle. Rate spreads and the energy income shock make it a very tough environment for the euro. EUR/USD should therefore drift near parity for much of 2H22. Elsewhere… Read More »Curb your peak dollar enthusiasm

Investors embrace the ‘no recession’ story and take stocks higher. Treasuries remain inverted pointing to ‘a recession’. Gold waffles between maybe it is or maybe it isn’t. Oil under pressure as Saudi Aramco hints at upping production. Big week for the retailers – will it be Christmas in September? Try the Parmegiana Crusted Mahi Mahi. Stocks rose on Friday – posting another week of gains – marking the longest stretch since November 2021. The Dow advanced by 424 pts or 1.3%, the S&P up 73 pts or 1.7%, the Nasdaq raced ahead by 270 pts or 2.1%, the Russell up by 42 pts or 2% and the Transports gained 75 pts or 0.5%.  The mood was helped on Wednesday by the recognition that inflation might just be subsiding as Joey tried to make very clear –  Saying that “the CPI for July came in at 0% m/m….let me repeat that 0%”…….now that sounds great, but when you take out food and energy (which they do) the CPI for July rose by 0.3%…and y/y it is still up 8.5% – or near 40 yr. highs……  but this report did give investors a reason to think that the FED will ‘take a… Read More »Big retail week, FOMC mins due on Wednesday

There will be no shortage of data releases in the coming week and the RBNZ is poised to hike rates again. But with investors still undecided about the implications of the latest US inflation report on Fed policy, the FOMC minutes might steal the limelight. Meanwhile, thinning liquidity as more traders head for their holiday destinations increases the likelihood of big knee-jerk reactions as markets obsess about the pace of monetary tightening and the risks of a recession. RBNZ leading the tightening race The Reserve Bank of New Zealand is tipped to lift its official cash rate (OCR) for the seventh straight meeting on Wednesday, becoming the first major central bank to take borrowing costs as high as 3% in this cycle. However, the hawkish posturing may be reaching the end of the line and there are downside risks for the New Zealand dollar from the meeting. Back in May, the Bank had forecast that the OCR would peak just below 4% by September 2023. That means there would only be a 100-basis-point increase remaining if it hikes rates by 50 bps in August as expected. But that is assuming that the rate path doesn’t get revised lower. The RBNZ… Read More »Week Ahead: A plethora of data, an RBNZ meeting, but focus on Fed minutes

Can stock markets continue to rally?  What a difference a week makes. Post last week’s weaker than expected July inflation print for the US, which saw annual headline CPI fall to 8.5% from 9.1% in June, the first positive inflation surprise for quite some time, and the market is in risk-on mode. Stock markets reached another milestone last week when the Nasdaq Composite index rose more than 20% from its mid-June low, to end its longest bear market since 2008. Added to this, the dollar has sold off sharply since its mid-July peak, with the dollar index losing 3%. The dollar had been inversely correlated with US stock markets for most of this year, thus, market bulls are looking for further dollar weakness if the stock markets continue to rally. However, the question now is, will the bull market continue? There seems to be two camps out there right now. On the one hand, those who think that the worst of the year’s market sell-off is behind us, now that US inflation looks like it has peaked, and on the other hand, those that are still concerned that the Fed has not finished its interest rate hiking cycle, that inflation… Read More »Week Ahead: UK inflation and hints about the Fed’s next move

We’ve just had an update on US inflation via July’s Consumer Price Index (CPI). Headline CPI, which includes food and energy, rose 8.5% compared to this time last year. This was below the consensus forecast of +8.7% which was in turn significantly lower than last month’s +9.1%. This was the first indication that inflation may have peaked, and we got another one the following day when Producer Prices also came in below expectations. While this is all good news, one month’s data doesn’t make a trend. Nevertheless, it was enough to give equities a significant boost, while the US dollar fell sharply. The probability of the Federal Reserve raising rates by 75-basis points at their next meeting in September fell from just under 70% to 40%. A 50-basis point increase is currently the most likely outcome, according to the CME FedWatch tool which calculates the odds using the fed funds futures markets. Recession? This CPI release rounds off a recent clutch of important market-moving updates. This began a few weeks ago when the US Federal Reserve raised rates by 75 basis points for the second successive month. That wasn’t a surprise, and the stock market rallied even as Federal Reserve… Read More »Inflation and an economic slowdown

The British pound is in negative territory today, after a contraction in UK GDP. In the European session, GBP/USD is trading at 1.2126, down 0.61% on the day. British economy declines in Q2 The British pound posted dazzling gains on Wednesday, surging 1.19%. The impressive climb was, however, a case of US dollar weakness, rather than any newfound strength in the pound. Inflation in the US was unexpectedly weaker than forecast, which raised market hopes that the Fed will ease policy. This led to the US dollar being less attractive and the currency took a nasty spill against all the majors. Sterling hasn’t fared as well after the UK posted the second-quarter GDP report. The economy fell in July by -0.1% QoQ, following a 0.8% gain in June (-0.2% exp). On an annualized basis, GDP growth slowed to 2.9%, within expectations but sharply down from 8.7% in Q1. The outlook does not look good as we head towards winter, with UK households about to be hit with sharp increases in energy prices. Consumers are already struggling with a nasty cost of living crisis, and as they tighten the purse strings, the spectre of a recession will become that much more… Read More »GBP/USD slips on GDP, US confidence data next