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Charts Show Market Expects Fed to Pause but Big Resistance AheadTraders, Over 90% of the market is currently pricing in a FED rate pause tomorrow, but beware, the market often moves towards the point of maximum pain. My charts are showing we are at a critical point of resistance as I type this post. The bulls are going to have to conquer 4,370 and confirm it on the daily to convince me that the they are not out of steam just yet. From my perspective and the way I am reading this chart, is that the market may be in for a bit of a surprise pullback here. The blow-off top that I predicted well over a year ago is still currently underway and, IMO, will continue. But the market never goes to any future price point in a straight line. We are due for a pullback. I am not saying this will occur. I am only suggesting that a bit of caution is still very much warranted for the remainder of this week. Here's a look at a schedule of significant events that have or will yet occur and may cause volatility: Tuesday: • US CPI Data • Hinman Docs Become Public • SEC's Coinbase Rulemaking Response • Binance US Hearing Wednesday: • US PPI Data • FOMC Meeting Thursday: • US Jobless Claims • US Retail Sales Data Take care, Stew
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by stewdamus
5
GBP/USD rebounds on strong UK job numbers, US inflation dropsThe British pound has pushed higher today, courtesy of a strong employment report. In the North American session, GBP/USD is trading at 1.2592, up 0.64%. The UK labour market remains robust, and today's employment numbers were higher than expected.  The economy created 250,000 jobs, up from 182,000 crushing the consensus of 162,000. The unemployment rate dipped to 3.8%, down from 4.0% and below the consensus of 4.0%. As well, average earnings including bonuses jumped to 6.5%, above 6.1%, which was also the consensus. The hot numbers will be a major disappointment for the Bank of England, which was expecting the labour market to show signs of cooling off after 12 straight rate hikes. The jump in wages may pose the biggest concern for the BoE, as high wage growth is a key driver of inflation, which remains very high at 8.7%.  Governor Bailey testifies today before the House of Lords Economic Affairs Committee, and the committee members are likely to grill Bailey on the latest job data. US inflation has been heading lower and the trend continued today. Headline CPI for May fell from 4.9% to 4.0%, just beating the consensus of 4.1%. The core rate dipped from 5.5% to 5.3%, as expected. The Fed's tightening policy has succeeded in pushing inflation lower, but the question is whether the Fed feels that inflation is dropping fast enough. Today's inflation data has the markets buying all into a pause at Wednesday's Fed meeting. The probability of a pause has soared to 99% according to CME's FedWatch, compared to 75% prior to the inflation release. There are Fed members who favour more rate hikes and the expected non-move on Wednesday could be a "hawkish skip" in which the Fed signals that it is taking a breather but more rate hikes are coming. There is resistance at 1.2657 and 1.2734 1.2513 and 1.2436 are providing support
by OANDA
Natural Gas - Set to Fly High with the Dollar?Weekly Long Position on AMEX:BOIL A new major low was observed in this market on May 30th The security of interest is $NYMEX:NG1!. Using a leveraged product AMEX:BOIL to gain exposure to a potential short-term movement, as a continuation of a long-term trend. See below the chart of $NYMEX:NG1!. Commodities, equities, and other assets priced in US Dollars are subject to relative foreign-exchange changes, as realisation of risk is highly complex in globalised markets. The price of NYMEX:NG1! represents some relationship to an almost infinite supply of financial products, as capital moves around the interconnected world. For example, Iran is not apart of SWIFT and must exchange assets to engage in trade with other nations. Their crude oil is paid for in gold. However the 'zero-risk' benchmark for both these commodity products, NYMEX:CL1! and COMEX:GC1! , are priced in US Dollars. As the relative strength of the US Dollar fluctuates, asset prices too will fluctuate even without alteration to any of the fundamental dynamics of the market in question. Martin Armstrong has established himself the foremost expert on 'Capital Flow Analysis'. See below the chart of COMEX:GC1! , FX:USDCHF , ECONOMICS:USCPI Important to note is the lack of direct correlation between Gold priced in US Dollars, and US Dollar domestic inflation (CPI). Contrary to the assertion of many analysts, gold responds directly to sovereign-related risk. The 'relative-value' of gold at the time of each major high reflects price discovery across all asset classes, though we can only view one time-price continuum on a chart. With that in mind, see below the chart of TVC:DXY and a few commodities. All these markets demonstrate various correlations to one another, there is a general trend that can be observed. As the capital flows persisting from Feb 2022 onwards reflect a shifting global investment outlook, towards high-quality assets. Over the course of the last few financial crises, the safe place for capital was US sovereign debt, in the form of Treasuries. As the plumbing of the two-tier global banking system is operated by the US Federal Reserve, highly liquid money markets keep the USD afloat in times of financial stress. However, this has not always been the case. During the Great Depression, the contraction of capital (deflation) was so severe that physical, paper US Dollars were the global asset of choice for security. Capital formation could continue once the price of gold was un-pegged from the dollar, to properly reflect price discovery in the newly minted global economy. Energy markets have become particularly chaotic over the last 16 months, as Russia plays an important role, particularly in Europe where a network of pipelines has become a security issue. Heavy sanctions have been placed on Russia, as well as an outright ban of a large quantity of its exports. Russia, having control over Ukraine's direct access to the ocean, has returned the favour. Resulting in a disruption in markets from wheat, and lumber, to gold and neon. With the Nordstream projects in critical condition, Europe's energy fragility should be of great concern, both domestically and to its allies. Among the sanctions, is a 'price cap' on the price of crude oil for export at $60/barrel. See chart of NYMEX light crude, and European brent crude. For those not aware, these represent relatively "raw" product exchanged on global markets. Crude must be refined to produce products like gasoline, diesel, lubricants, etc. As with any attempt to artificially manipulate the price of an asset, this presents arbitrage opportunity. Since December when this was imposed, China and India have reportedly been buying Russian crude, refining and exporting it. Russia has spent years purging US Dollar exposure from its energy markets, as war in the Middle East has steadily grown tension between the two powers. Foreign exchange markets are very sensitive to volatility, and can respond unpredictably to major shifts in trend. The consequences of capital moving around the globe quickly can be devastating, see FX_IDC:USDRUB , TVC:US10Y , and TVC:MOVE the US bond market volatility index, compared. All markets must respond to price action, as real risk remains deeply concealed. All while this is going on, global shipping has become significantly more expensive. Meaning the logistical element of global energy markets has become very convoluted. From cheap oil sitting on tankers, to arbitrage of diesel products, to ships transferring oil between one another to conceal Russian oil, to leveraged oil ETFs, the dynamics of NYMEX:CL1! have become almost unfathomably complicated. So to return to NYMEX:NG1! , the value of this product lies in simplicity. The current price can only be assumed to properly reflect global monetary conditions, as a dramatic correction can be observed. The art of business, is buying what nobody wants and selling it when everyone wants it. So much focus in finance at the moment is pointed towards the Federal Reserve and its attempted manipulations of the interest rate on US Dollars. Why this is taking place however, is a subject that has avoided capturing attention. The Federal Reserve is attempting to combat WAR INFLATION by creating deflation domestically, supported by capital flows from abroad. Flight to quality will take place independent of any institutional power, by offering a higher rate of return on Treasuries the Fed is more likely to be able to reduce its balance sheet, and support NATO's war efforts. In order to pay troops, send equipment offshore and make loans to Ukraine, capital must leave the borders of the United States, to the sum of trillions, creating massive inflation globally. So to clarify, global capital is fleeing towards the United States. However, the only sources of capital formation in the United States are financialization, and war. Stagflation, thought to be impossible, has returned to the world. As such, equity and asset prices can continue to rise, without actually rising in relative value globally, since the same will occur in the sum of tanks, aircraft, etc, moved around the world. A zero-sum game. The fact of the matter is that the world is going to need natural gas - and a lot of it at that. The current domestic investment climate can't adequately adjust for this, the dominant psychological trends in markets push capital down paths which are facilitated by political means, for example 'Environmentally Safe Governance'. Exploration of gas reserves and extraction of energy products has become very unpopular in the last decade, to the unfortunate dismay of anyone who hopes to drive car or live in a heated home in the next decade. Of note, that besides the US and Canada the largest producers and exporters of natural gas are apart of, or close to the influence of BRICS. Any global conflict which takes place, will first manifest itself in global financial markets, and there is lengthy historical precedent for this. Europe, which has its gas supplied from abroad is completely exposed to market energy prices, as well as the logistical risk of actually supplying said gas. A precarious position to be in, as war knocks on their door. Immediately after Russia's invasion of Ukraine, the world saw a vision of the future flicker as gasoline prices skyrocketed. Reality as we know it in the industrialised depends on simple global logistics, and cheap energy prices. Both of these constructs are crumbling very quickly, and cannot be resolved until a settlement is made between Ukraine and Russia. Money printing and sanctions cannot make more natural gas appear, nor get it across the ocean cheaply. I propose a trade on AMEX:BOIL , to gain exposure to volatility in Natural Gas markets. Lines of support/resistance represent the arbitrary price points I suggest may be relevant, and can be used for entry/exit and position management.
AMEX:BOILLong
by FPS_Denny
USD/CAD- Canadian dollar extends gains despite weak job dataThe Canadian dollar continues to rally. USD/CAD is trading at 1.3328 in the North American session, down 0.22% on the day. The week wrapped up with Canada's May employment report, which usually is released at the same time as the US job data, but had the spotlight to itself today. The data was a disappointment. Canada's economy shed 17,300 jobs, all of which were full-time positions. This followed an increase of 41,400 in April and missed the consensus of a gain of 23,200. The unemployment rate rose from 5.0% to 5.2%, the first rise since August 2022. The weak job numbers could signal softness in the labour market, which would have major ramifications for the Bank of Canada's rate path. The Canadian dollar lost 40 points in the aftermath of the release but quickly recovered these losses. We could see more movement from USD/CAD on Monday as the markets digest these numbers. The US labour market has shown resilience, as we saw last week with a red-hot nonfarm payroll report. Still, some cracks have appeared, such as the jump in the unemployment rate and a low participation rate. The markets are looking for signs that the labour market is cooling off and jumped all over unemployment claims, which surprised on the upside at 261,000, up from 233,000 a week earlier. A spike in one weekly report isn't all that significant, but the timing of the release close to the Fed meeting may make a Fed pause more likely, and that has sent the US dollar lower against its major rivals. Central banks continue to wrestle with high inflation, which has remained stubbornly high despite aggressive rate tightening. This week alone, the Reserve Bank of Australia and the Bank of Canada raised rates by 0.25%, surprising the markets which had expected a pause. The BoC has made clear that its "conditional pause" stance would be data-dependent and perhaps the markets should have paid more attention to the uptick in April inflation and strong GDP growth in the first quarter. The BoC highlighted both of these indicators in its rate statement as factors in its decision to hike rates, and the central bank will be keeping a close eye on economic growth and inflation ahead of the July meeting. USD/CAD is testing support at 1.3339. Below, there is support at 1.3250 1.3496 and 1.3585 are the next resistance lines
by OANDA
1
AUD/USD hits one-month high, Chinese inflation eyedThe Australian dollar has bounced back on Thursday after losing ground on Wednesday. AUD/USD is trading at 0.6681, up 0.42% on the day. The Australian dollar touched a high of 0.6690 on Wednesday, its highest level in a month. The RBA surprised the markets with a rate hike on Wednesday, noting that inflation had unexpectedly risen in April and GDP in the first quarter was higher than the RBA had predicted. The RBA statement said that more tightening might be needed "to ensure that inflation returns to target in a reasonable timeframe". Lowe was even more candid in remarks at a public engagement on Wednesday, saying that the Bank has been patient in the battle to get inflation back to the 2-3% target "but our patience has a limit and the risks are testing that limit.” Lowe appeared to be referring to the upside risk in inflation, and he could be hinting at a "higher and longer" stance with rate policy until inflation returns closer to target. Inflation has peaked, but at the current level of 7%, Lowe may be sending a message that inflation is falling far too slowly and he's prepared to keep raising rates, even if this results in a hard landing for the economy. China will release inflation data on Friday. Inflation is projected to rise to 0.3% in May, up from 0.1% in April. An improvement from the April reading would reduce concerns that China could be facing disinflation and may have to respond by cutting interest rates. On Wednesday, China released soft trade data, which showed exports fell by 7.5%. This has raised doubts about China's economic recovery. The Australian dollar, which is highly sensitive to Chinese data, lost ground following the release. AUD/USD continues to test resistance at 0.6677. Above, there is resistance at 0.6749 There is support at 0.6568 and 0.6496
by OANDA
Canadian dollar calm ahead of BoC rate announcementThe Canadian dollar is unchanged, trading at 1.3400 in the North American session. The Bank of Canada meets later today, and the money markets are expecting another pause, which would leave the benchmark rate at 4.5%. The BoC's rate-tightening cycle has been on a "conditional pause", which is another way of saying that rate decisions are data-dependent, especially on inflation and employment reports. The Bank has kept rates on hold since March and is expected to follow suit today, but there have been signals that the rate-hike cycle may not be over. First, April inflation report surprised on the upside after it ticked upwards to 4.4%, up from 4.3% annually, and rose from 0.3% to 0.7% month-to-month. The upswing will be of concern to BoC policy makers, as the central bank is intent on wrestling inflation back to the 2% target. The second concern is GDP, which hit 3.1% y/y in the first quarter, beating the BoC's forecast of 2.3% growth. Consumer spending has been stronger than anticipated, as many households have sizeable savings from the pandemic which they are spending now that the economy has reopened. BoC policy makers are concerned about the rise in inflation and GDP, and we could see hints about future rate hikes even if the Bank opts to pause at today's meeting. The Fed meets next week and with a blackout period in place on Fed public engagements, the markets are hunting for clues. Market pricing has been on a roller-coaster as divisions within the Fed over rate policy have made it difficult to determine what the Fed has planned. Currently, the markets are predicting a 78% chance of a pause, which would mark the first hold in rates after 10 straight rate increases. 1.3375 is a weak support line, followed by 1.3250 1.3496 and 1.3585 are the next resistance lines
by OANDA
AUD/USD extends gains after RBA surpriseThe Australian dollar continues to roll and has extended its rally on Tuesday. In the European session, AUD/USD is trading at 0.6659, up 0.63% on the day. The Aussie has sparkled in June, surging 2.4%. On the economic calendar, Australia releases GDP early on Wednesday. The markets are expecting a solid gain of 2.7% in the first quarter, up from 2.4% in Q4 2022. The markets were confident that the RBA would pause at today's meeting, projecting a 67% chance of a hike. I wrote yesterday that although a pause was likely, Governor Lowe has a habit of surprising the markets. Well, make that the second straight month that the markets have guessed wrong about a pause, with the RBA hiking each time by 25 basis points. Even with the surprise hike, the benchmark cash rate of 4.10% remains below most of the major central banks, including the Federal Reserve. Australian inflation has been heading in the right direction, dropping from 7.8% to 7.0% in April. This is evidently not fast enough for the RBA, which has a target of 2-3%. Governor Lowe has been hawkish and said last week that the Bank will do whatever it takes to bring inflation back down to target so perhaps the real surprise is why the markets keep expecting a pause when Lowe keeps repeating that inflation is way too high. Lowe reiterated this position in the rate statement, saying that "inflation in Australia has passed its peak, but at 7% is still too high and it will be some time yet before it is back in the target range". Households and businesses will feel even more pain from the hike, but that's a price the RBA believes is necessary to beat public enemy number one - inflation.
by OANDA
Oil Higher from here?On Sunday OPEC+ announced: The 3.6mil bpd production cuts, will extend into 2024. Saudi's will cut an additional 1mil bpd from July 2023. The #oil #price opened higher on Sunday evening futures open. It now looks like we have an inverse head & shoulders on the price of oil, taking the price into the mid and upper $70s. This may pave the way for oil being in the $80s sonner than later. This will place pressure on the Fed as it will lead to even more inflation. Headwinds however is still the lomming recession in US, EU as well as the weaker Chinese markets.
NYMEX:CL1!
by chsmit
SPY Analysis - Market Breadth, Fed Rate Cycles, and InflationI measure the breadth in the S&P as the SPY (market cap weighted S&P) divided by RSP (equal weighted S&P ETF). The higher the ratio, the more concentrated the market, and therefore less market breadth. As can be seen, nearly every time the ratio has neared 3.0, the Fed has ensued with an easy money policy, and the SPY subsequently turned bullish. During these times, Fed rates, as well as inflation, were relatively low. There are several exceptions. in November and December 2021, the ratio neared 3.0 at 2.97, and the Fed ensued in early 2022 with an historic rate tightening cycle, on the heals of persistent inflation of 4.7 percent in 2021 which had resulted (and continues today) from the massive COVID stimulus program. The end result was the selloff in we experienced in 2022. Another exception was the period from 2015 to 2019, when rates were gradually raised, but maxed out at 2.40 in a relatively low inflation environment. This is not the environment that we are in today. Today, we have already had a 50 - 61% retrace from the low posted in October, 2022, and the market breadth is again at a low (SPY/RSP=3.00) . The Fed now has the option of pausing/easing and in effect pump a bull, but by doing so it will face a huge dilemma: with an annual inflation rate of 8 percent, and the largest budget deficit in modern history, a return to easy money will further fuel inflation. The other option would be to continue the rate hikes, and promote an economic collapse (starting with the banking sector), which will effectively bring the breadth issue to rest (along with the entire market). Neither of these are good options. Bitter pill...
AMEX:SPY
by UnknownUnicorn13101
EUR/USD falls to 5-week low as inflation easesThe euro has edged higher on Thursday, trading at 1.0708, up 0.19%. The currency remains under pressure as the US dollar is flexing some muscles. On Wednesday, EUR/USD touched a low of 1.0635, its lowest level since March 20. There are clear signs of disinflation in the eurozone, as rising interest rates have dampened economic activity. Spain and France reported sharp drops in inflation in April, and Germany has followed suit, with inflation dropping from 7.6% in April to 6.3% in May. This was lower than the consensus of 6.8%. In the eurozone, inflation fell from 7% to 6.1%, below the consensus of 6.3%. Inflation has eased as energy prices have fallen sharply, with food prices also dropping. Most importantly, eurozone core inflation fell to 5.3%, down from 5.6% and below the consensus of 5.5%. The ECB is focussed on the core rate, which excludes energy and food prices. The drop in the core inflation in April will add support for the ECB to take a pause in rate hikes, as early as the July meeting. The US House of Representatives approved the debt ceiling deal on Wednesday. The measure sailed through, by a vote of 314-117. The Senate is expected to vote on the bill later this week, with the government forecast to hit the debt ceiling by June 5th. On the employment front, JOLTS Job Openings rose to 10.1 million, above the upwardly revised prior reading of 9.7 million and the consensus of 94 million. This is another indication that the labour market remains very strong and if the nonfarm payrolls release on Friday is solid, the Fed may have to continue raising rates. Fed members are divided on whether to pause or hike at the June 14th meeting, and Fed swap futures are pricing in a 67% chance of a 0.25% hike at the meeting. There is resistance at 1.0753 and 1.0804 1.0675 and 1.0624 are providing support
by OANDA
1
The Overnight Reverse Repo Facility Looks to be Breaking DownMoney that is being parked at the Feds Reverse Repo Facility due to attractively high interest rates the fed has set for money parked at the facility has been on a steady decline since late 2022 and we have now confirmed a lower high and are looking to break down below a Bearish Dragon trend line that could be the initial trigger that gets it started to going down all the way to an 88.6% retrace or lower even. One can only speculate that the money exiting this facility will lead to more trading of short term debt on the open market, which could eventually lead to yields coming down overall and for all of this excess liquidity to chase Equities instead as the value of the US Dollar declines due to the shock of all this newly added supply of liquid cash to the open market thereby causing a loosening of market conditions.
FRED:RRPONTSYDLong
by RizeSenpai
Are we approaching the last cycle expansion phase?The last cycle expansion phase or the euphoric stage, has already occurred between 2020 and 2021. Sir John Templeton said: “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria.” Reference of Nasdaq: E-mini Nasdaq-100 & Opt Minimum fluctuation 0.25 index points = $5.00 Micro E-mini Nasdaq-100 Index & Opt Minimum fluctuation 0.25 index points = $0.50 Disclaimer: • What presented here is not a recommendation, please consult your licensed broker. • Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises. CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CME_MINI:NQ1!Short
by konhow
2
FXB downside after U.K. inflationAs a young trader (21 years old), I see my trading style as more of an art than a science. I don't understand patterns, and I don't use technical analysis. I am a macro trader. I take information from various sources (WSJ, Twitter, Investing.com, Trading Economics, ect.), and my instincts kick in. I understand where assets should be moving on data releases. The U.K. pound has been on a monster rally in the past month and change. Expectations for the U.S. Federal Reserve to pause rates, with some saying cuts later into the year, has simmered the red hot U.S. dollar. The Bank of England on the other hand, is expected to continue hiking rates in the midst of the highest inflation in recent memory. When yields rise on the U.K. Gilt, that makes their debt more attractive to foreign investors, making their currency appreciate against the greenback. This past Wednesday morning, at 1:00AM (CST), U.K. inflation came in hotter than consensus estimates (8.7% actual versus 8.2% consensus), as did core inflation (6.8% actual versus 6.2% consensus). I would have expected the pound to appreciate against other currencies as their currency becomes more valuable as Gilt yields rise. The opposite happened, FXB has now fallen two consecutive days. I was building up my short position against the pound, but we must remember U.S. data sets can affect currencies across the globe. I exited my FXB position before the open today with the intention of hopping back in after said release. Tomorrow (5/26), before the bell, we have U.K. retail sales MoM, U.S. durable goods orders MoM, core PCE prices MoM, personal spending MoM, and personal income MoM. There's no telling where any of this data will land us, especially the U.S. data, and that is why I closed out of my position today. As far as I can see, we have no upcoming U.K data that would affect the pound. That is why I'm confident in this trade. The market will have time to digest what has transpired, and my hope is that it will come to the same conclusion that I have. I have full intentions of getting back into my trade after this data is priced back into the stock. The most important lesson I've learned in my very young trading career is protecting your capital and letting the trades come to you, don't look for them, they will find you ;) fyi - this is my first writing and any feedback is appreciated! Thanks
AMEX:FXBShort
by UnknownUnicorn22408063
1
GBP/USD edges lower, markets eye UK retail salesGBP/USD continues its downswing. The pound is trading at 1.2340, down 0.20% and is at a one-month low against the US dollar. The UK releases retail sales for April on Friday. On an annualized basis, the headline and core readings are expected to decline by 2.8% in April, which would indicate that UK consumers continue to hold tight onto the purse strings. Consumers are having a tough time with the cost of living crisis, with inflation at 8.3% and a weak reading could weigh on the pound. The US debt ceiling impasse remains unresolved, with the White House warning that the US could default on its debt on June 1st if no deal is reached in Congress. The markets are jittery and US 10-year Treasury yields have jumped to 3.75, up 1.1% today. The US dollar has also benefited from the debt ceiling crisis as investors have snapped up safe-haven assets. On Wednesday, Fitch Ratings put the top-ranked United States sovereign credit rating on "rating watch negative" due to the danger of a US debt ceiling default and we can expect market risk sentiment to continue falling as we move closer to June without a deal in place. The FOMC minutes indicated that the Fed remains unclear over future rate policy. At the May meeting, some members said there was a need for further increases as inflation was not falling fast enough. Other members argued that the economy was cooling and there was no need for more tightening. All the members agreed that inflation remains too high and the vote to raise rates by 25 basis points at the May meeting was unanimous. So what's next? The Fed meets on June 14th and appears to be leaning towards a pause in rate increases. The odds of a pause are currently 62%, versus 37% for a 25-bp hike, according to CME's FedWatch. Just a month ago, the probabilities were 70% for a pause, 8% for a 25-bp hike and 22% chance for a rate cut of 25 basis points. A hawkish Fed and solid US data have put to rest market speculation of a rate cut next month. Speaking of solid economic data, US Preliminary GDP rose 1.3% y/y in the first quarter, up from 1.3% in Q4 2020, which was also the estimate. On a quarterly basis, GDP climbed 4.2%, above the estimate of 4.0% and after a Q4 gain of 4.0%. Unemployment claims rose to 229,000, following a previous reading of 225,000, which was downwardly revised from 242,000. This easily beat the estimate of 245,000. The Fed will not be thrilled with these numbers, as it needs the economy to cool in order to wrap up the current rate-tightening cycle. GBP/USD tested support at 1.2375 in the European session. Below, there is support at 1.2307 1.2461 and 1.2529 are the next resistance levels
by OANDA
2
How New Zealand's central bank have given up the fight... It's the 24th May 2023, 3pm local time. The Reserve Bank of New Zealand (RBNZ) have just increased the official interest rate by 0.25% to 5.50%, as expected. What happened next was not expected... The RBNZ announced that they currently have no intention of raising rates further and that the next rate change could possibly be a cut! What does this mean for New Zealand and the NZD? Central banks across the globe have been increasing rates over the last 12 months to tackle high inflation. In some countries, like the US, inflation has been coming down and is currently edging toward a 2% norm. For other countries, inflation has been much more stubborn. New Zealand is one of these countries with "sticky" inflation, which is currently sitting just below 7% and hasn't really budged over the last year. The RBNZ's main weapon to fight inflation is to raise interest rates. Until now, the markets have expected the RBNZ, along with other central banks, to keep raising rates in order to bring inflation down. New Zealand's central bank has announced they are no longer going to do this. So, what does this mean? Well, it means that high inflation could be a new norm for New Zealanders. The central bank is giving up the fight. High inflation has won. Inflation is here to stay! This is obviously not good news for the NZD, hence today's strong NZD sell off. High inflation combined with no more rate hikes, and poor PMI figures, may result in the NZD to continue to weaken longer-time. Could the NZD continue to sell off? The outlook doesn't look great for New Zealand, but this is not Brexit or a financial crisis. There are economic figures indicating good economic health for New Zealand, such as strong - relative to other global economies - GDP growth and low unemployment. The announcement of no more rate hikes could be a bearish driving force for the NZD, though. What does this mean for the rest of the world? The Australian Dollar (AUD) is strongly correlated to the NZD, meaning we could see the AUD fall also, which has already started. It wouldn't be a great shock, to see the Reserve Bank of Australia take a similar stance to their neighbours, which could see the AUD fall further. What could really shift the markets is if the RBNZ have set the tone for the rest of the Western world. Now that the RBNZ have given up, could other central banks do the same? This may result in downside moves for the Euro, British Pound, Rand, and other global currencies. How to trade the RBNZ's decision... The US continues to lead the way for the Western world with regarding to bringing inflation to a 2% norm. Canada is following a similar trend. Singapore is not too far off. Economies such as the Euro Area, the UK, Scandinavia, and South Africa continue to face an issue of stubbornly high inflation. These countries could take a similar approach to the RBNZ but it's way too early to tell. At the moment, rate hikes continue to be on the table for the foreseeable future. For me, the inflation trades seem obvious, buy the US Dollar and sell the NZD and AUD. If other central banks follow suit to the RBNZ decision, then selling the currencies related to those central banks is an obvious trade, especially the EUR, GBP, ZAR and SEK.
Short
by Samuel_Morton_Trader
GBP/USD dips after disappointing UK inflationGBP/USD is down for a third straight day, trading at 1.2374, down 0.33%. Earlier, GBP/USD touched a low of 1.2369, its lowest level since April 18th. The FOMC releases the minutes of the May meeting later today. The closely-watched UK inflation report for April was a disappointment. There was some good news as headline inflation fell to 8.7%, down sharply from 10.1%. Hopefully, this is the end, finally, of inflation in double-digit territory. Still, the reading was above the estimate of 8.2%. There was nothing positive about core CPI, which is the more important gauge of inflation. The core rate jumped from 6.2% to 6.8%. Forecasters had expected core CPI to remain at 6.2% and the unexpected rise is clearly a big step backward for the Bank of England in its tenacious battle with inflation. Governor Bailey is speaking at two public engagements today, and we can expect him to make mention of the inflation report. The BoE has raised rates by 1% this year, bringing the cash rate to 5.25%, but inflation has proven to be persistent. The IMF has projected that UK inflation would fall to around 5% by the end of the year and drop to the 2% target by the middle of 2025. It will be a bumpy road to restore low inflation, and the BoE will probably have to raise rates again in June, unless core inflation surprises dramatically on the downside. US lawmakers continue to fight over the debt ceiling, as US Treasury Secretary Yellen has warned that the ceiling could be reached on June 1st, which doesn't leave a lot of time for an agreement. Republicans have said Yellen's date isn't accurate, but even if the deadline is a week or two later, Congress seems to be playing with fire to score political points. Investors are worried, and stock markets are down while safe-havens such as gold and the US dollar are higher. We've seen this movie before, and Congress has always reached a deal before the deadline. Still, we can expect risk sentiment to slide and the US dollar to gain ground the longer we go without a deal. GBP/USD tested support at 1.2375 in the European session. Below, there is support at 1.2307 1.2461 and 1.2529 are the next resistance levels
by OANDA
NZD/USD unchanged ahead of New Zealand retail salesThe New Zealand dollar is coming off a strong week, with gains of 1.36%. In Monday's North American session, NZD is unchanged, trading at 0.6274. New Zealand releases retail sales on Tuesday. The central bank's tightening has hampered consumer spending and the markets are bracing for a decline in retail sales for the first quarter. Headline retail sales are expected at -0.4%, after -0.6% in Q4 2022. The core rate is projected to decline by 0.6%, following -1.6% in Q4. The retail sales report will be followed by the Reserve Bank of New Zealand's rate decision on Wednesday. The markets have priced in a modest 25-basis point hike, which would be the smallest increase since February 2022, when the central bank raised rates from 0.75% to 1.00%. The central bank has not been shy about tightening, with the benchmark cash rate currently at 5.25%. Inflation in March from 7.2% to 6.7% on an annualized basis, more than double the upper range of the 1-3% target. The RBNZ is unlikely to wind up the current rate-tightening cycle before inflation drops substantially. There was some positive news earlier in the month, as inflation expectations eased in the first quarter to 2.79%, down from 3.30% in the previous quarter. This may have cemented a 25-bp hike on Wednesday, as the central bank pays close attention to inflation expectations, which if embedded can lead to higher inflation. Fed Chair Jerome Powell said on Friday that the banking sector turmoil could mean that the Fed will not have to raise rates "as much as it would have otherwise". Powell reiterated that inflation remained too high and future rate decisions would depend on data. The takeaway from Powell's remarks is that we could be close to the end of the current rate-hike cycle, but inflation will have to cooperate and move lower to the 2% target. NZD/USD is putting pressure on support at 0.6256. Below, there is support at 0.6207 0.6326 and 0.6375 are the next resistance lines
by OANDA
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