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Interestrates

AUD/USD & AUD/JPY Analysis / Iron Ore & InflationThe Australian Dollar has weakened in recent weeks due to Iron Ore prices declining as China's zero covid policy has caused investors to fear a slowdown in the world's second-biggest economy. Australia exports 80% of Iron ore to China, so any slowdown in China will hit demand for Australia's commodity exports and put downward pressure on the currency. We also have Australian inflation data out tomorrow, which could surprise to the upside and beat economists' forecast, causing a rally higher in the Australian Dollar on rate hike expectations. In this video I break down what could play out and how to make money from the potential outcomes.
COMEX:TIO1!Long
by KayansMarkets
GBP/USD - Short Sell Fundamental and Technical Set Up UpdateThe Pound has extended its weakness against the U.S Dollar as the UK economy slips closer to a recession. The UK cost of living crisis, which is down to high energy prices, rising taxes, and now higher interest rates is increasing the public mortgage, credit cards, car loans, student debt and other debt payments, causing investors to question the amount of interest rate hikes the Bank of England can deliver without causing a recession. I break this down in more detail in the video.
Short
by KayansMarkets
EURUSD: History doesn't repeat, but it rhymesWell, well, well... Interesting chart we have here. If you're a keen central bank watcher like we are at Macrodesiac, then you'll have certain comments signposted at certain dates and prices. The first one to take note of is Draghi's comment back in July 2012... WHATEVER IT TAKES This phrase is famed for 'saving' the euro back then during the sovereign debt crisis... And we saw the euro rally from lows of ~1.20, all the way up to ~1.40... But it died a death again. More recently, we have Mdme. Lagarde's famous phrase... WE ARE NOT HERE TO CLOSE SPREADS This was back in March 2020 at the start of the Covid Crisis where Eurozone sovereign debt yields were widening massively (specifically Italian BTPs vs German Bunds). Interestingly, we are seeing these spreads widening at the moment... This puts the ECB in a bit of a conundrum, since they are most probably looking to end their asset purchase programme in June and crack on with hiking... The problem here is that the market, we don't think, is likely to take the announcement of tightening as a BAD sign for the euro, when if you were looking at yield differentials, you might say that euro strength should come into play since you can earn greater interest on it. We're essentially looking at the euro doing the OPPOSITE of what happened after Draghi's and Lagarde's comments at said prices. We are therefore not unconvinced that the euro could face a similar fate as it did in the years post Draghi, where it fell from the high of ~1.40 to the low at 1.05, which in current context, could mean a fall in EURUSD to 0.90.
by FinkPro
1
Housing is the KEY to controlling inflationI spent the weekend thinking about the housing market. Annoyingly, once a seed takes root in my mind it's going nowhere until it's fully grown. That seed started out as "What's the biggest risk for the Fed/inflation?" To my mind, it's this 👇 US WAGES, BENFITS RISE TO 2 DECADE HIGH AS INFLATION PICKS UP That's a summary of the last Employment Cost Index. You get the gist from the headline. Here are some quotes from an article we wrote back in January (happy to share with you if you PM me). 'The increases from the previous two quarters at 1% and 0.9% were already at the high end of ‘normal’ for the past decade. In isolation, those two prints could probably be explained away by economic ‘re-opening’. Q3 was a whole new level! Usually this isn’t an important data point. Released quarterly, it’s been pretty stable and boring either side of 0.6% for the past 10 years. In the current market context, the ECI is right in the market spotlight 👇' And it will be again on Friday (even though it's not marked as high impact on a lot of calendars). Summing up, the dreaded wage/price spiral is THE big risk. What's that got to do with housing? If you don't cool the housing market, you don't cool inflation. You might ask why. See chart 1 , chart 2 , and chart 3 . Basically, the price of everyone's biggest expense/outlay is going up. And it's going up FAST. If that's happening to you in a labour market with "1.7 job openings to every unemployed person", and a labour market that's "tight to an unhealthy level" (as Powell said after the last FOMC in March )... You grab your boss by the proverbials and demand a pay rise, or you look for a better-paying job. Either way, the goal is the same. Pay me more. Which is how the circular image in the idea happens... Why target housing? HOUSING IS THE BUSINESS CYCLE (Edward E. Leamer) Oh great, not another economics paper... Don't worry. This one has the best introduction to any economics paper you've ever read (yes, I know it's a low bar). The bad news is that I am not a macro-economist. Wicksell and Hayek and Keynes and Friedman and Tobin and Lucas and Prescott speak foreign languages with which I have familiarity but not mastery. The good news is that I am not a macro-economist. That frees me from the heavy conceptual burdens that most macro economists seem to carry. It allows me to conclude that Keynesian thinking, monetarism, rational expectations and real business cycles all suffer from the same problem – too much theory and not enough data. In particular, none of these comes to grips with the role of housing in modern US recessions. Glorious. In the paper, Leamer explains how housing starts are an excellent cycle leading indicator 👇 By virtue of its prominence in our recessions, it makes sense for housing to play a prominent role in the conduct of monetary policy. A modified Taylor Rule would depend on a long-term measure of inflation having little to do with the phase in the cycle, and, in place of Taylor's output gap, housing starts and the change in housing starts, which together form the best forward-looking indicator of the cycle of which I am aware. Last Monday, this happened. At the same time, this is happening. And so is this... The shift from "Prices too high! Something must be done!" to Housing unaffordable" in just four months is pretty epic... Here's some quotes from an article we wrote in February, on Zoltan, Credit Suisse's financial plumbing guy and his view on a bit of writing the market was going mad over back then... To slow OER inflation, mortgage rates need to get higher and house prices flat or outright lower. To slow all other services – driven by a shortage of labor – we need more supply of labor, not less demand for it through a recession. Again, inclusive low unemployment is a political imperative and, by extension, so is redistribution via stronger wage growth. If we agree on that, what follows is that we need to slow services inflation by slowing, not killing, wage growth, by bringing about more supply of labor, not less demand for it via a recession. Maybe to increase labor supply, we need lower asset prices… It's easy to look at all of this and think "something's gonna break, house prices will crash" or just generally panic and freak out. But this isn't 2008. Yes, housing will be less affordable for new buyers and refinancing, but that doesn't mean everyone who already owns a home is about to get rekt. Many have locked in mortgages at low fixed rates. Lending standards are far higher. As long as the economy holds up OK, they should have no problems servicing that debt. What the increase in mortgage rates does achieve though, is to stop house prices from rising further, or at minimum, slow the pace of price increases. The idea of a soft landing for the Fed is pretty dependent on this transmission working quickly. Reverse the wealth effect enough to slow the economy without taking it too far... Housing leads (see chart 2 in published idea above). And that's probably why the market is already pricing in rate cuts from 2023 (see main chart and the uptick in price of eurodollars from 2023). Summing up, the housing market's in for a rough ride. It's a risk but hitting housing is probably the best way for the Fed to get inflation under control sooner rather than later. The energy-driven slowdown in Europe & the Covid lockdowns in China could also play a role in slowing the global economy. Dynamic as the US economy is, it can't do everything alone.
G
by FinkPro
Bonds Continue the Bear RoutBonds have taken another turn south, after flirting briefly with 119'23. With the Fed maintaining their hawkish stance, there is little to support a breakout, or a significant technical retracement. We have broken through lows at 119'01, and are currently hovering over our next target at 188'04. The Kovach OBV has been abysmally bearish for some time now, but does seem to be gradually leveling off, perhaps indicating a bottom soon. If we see a relief rally, then 119'23 should provide resistance.
CBOT:ZN1!Short
by quantguy
USDJPY Extremely Overbought, How to sell?We look at the USD/JPY and its driver the US Interest rate market. We talk about the key Y130 level that may Upset the Bank of Japan and Ministry of Finance. Japan is historically one of the biggest FX interverners but the first step is always jawbowning (Official comments of concern about the Yen) We looking for either that or data/comments from FED members to spark US yields to drop back from the boil. Looking for 100-200 point correction once it begins.
Short
by easyMarkets
1
$DXY About to Break Out? I mentioned recently on twitter that I am long USDJPY. Not much to say about the dollar, other than it looks like it wants to break out to the upside. Additionally, the macroeconomic tailwinds support a bullish dollar thesis in a couple of ways: 1. The Federal Reserve has been very transparent about their intention to continue to raise interest rates through 2022. Increasing interest rates make the dollar more attractive via the risk-free rate of return. 2. The war in Ukraine: as an added measure towards defeating Russia's war machine, raising interest rates in the US makes exporting dollars to Russia that much less attractive. When I say "exporting dollars to Russia", I am describing a situation in which other sovereign countries who might otherwise be willing to engage in trade with Russia, can now look to the risk free rate of return in dollar-denominated asset classes... so, why would you trade with Russia when you can buy US bonds that pay interest and allow you to stabilize your currency and rebalance your trade policy? 3. Oil prices continue to rise. Russia may pretend to be in control of the market for crude, but so far - this is empty dictatorial rhetoric. 4. Bitcoin continues to deteriorate ( I identified the top in October 2021 ). A stronger dollar, resulting from real world economic conditions, will continue to put adverse pressure on Bitcoin and cryptos alike. last, I am now a little unsure on stocks overall. I am *guessing* stocks will continue to drift sideways for now. God bless, -Chief
TVC:DXYLong
by ChiefMacro
Gold Running into ResistanceGold has retraced slightly from highs at 1982. This was the top of a dense patch of levels that began at 1962 or so. We are on the precipice of a vacuum zone to 1999, which is our target if we can break out. However, several red triangles on the KRI have confirmed prohibitive resistance for now. The Kovach OBV is still fairly strong, however, and has not dipped significantly despite the retracement. We should have strong support at current levels, but watch the vacuum zone below 1962 to 1936.
COMEX:GC1!Short
by quantguy
CAD/JPY Buy Set Up - Interest Rate Differentials The Canadian Dollar continues to strengthen against the Japanese Yen as the Bank of Canada continues to aggressively raise Interest rates to fight off high inflation. Japan's domestic inflation is in stark contrast as Japan continues to struggle to hit the Bank of Japan's 2.00% target. I show the historical difference in interest rates on 10Year Government bonds having a big impact on the CAD/JPY exchange rate. Oil accounts for nearly 20% of Canada's exports and commodities make up a large proportion of export income. With commodities prices rallying around the world, the Canadian dollar continues to strengthen as more money comes flooding into the country, increasing the demand for the currency in exchange rates. #Forex #Currencies #Investing #CanadianDollar #CAD/JPY #Interestrates #InterestRateDifferentials
Long
by KayansMarkets
Can Gold Break Higher??Gold has tested higher levels after being confined between 1917 and 1936 for the past few days. We are still holding the broader range between 1895 and 1973 or so. Gold has taken an upswing, but is facing resistance from a dense patch of levels in this price territory. The Kovach OBV has upticked with the momentum, but it is doubtful that momentum is strong enough to break through these levels. In the event of a retracement, watch for support in the value area between 1917 and 1936. A full retracement could take us back to 1895. Otherwise, the next target is 1999.
COMEX:GC1!Short
by quantguy
1