HYCM Market Insights & Trading Tips

RBNZ: On hold, with gentle optimism
by Giles Coghlan, Chief Currency Analyst, HYCM

The RBNZ meeting was pretty uneventful

The interest rate was kept at 0.25% and the Large Scale Asset Purchase (LSAP, $100 billion by June 2022) and Funding for Lending Programme (FLP) were kept unchanged. Here is a brief rundown of the meeting which was essentially on hold, with a tiny hint of optimism.

The good

The RBNZ recognised the following positive factors for New Zealand:

1. Global growth outlook has improved with a commitment to monetary and fiscal stimulus as well as the progression of vaccination programmes.
2. The planned trans-Tasman travel arrangements should support income and employment in the tourism sector.
3. Reduced Gov’t bond issuance is placing less upward pressure on New Zealand bonds and provides less scope for LSAP purchases.
4. The changes in LSAP levels (reductions) were not seen as a change in monetary policy, but more to do with market functioning.
5. New Zealand’s commodity export prices are benefiting from strong global demand.

The bad

1. Risks remain.
2. Any inflation higher is likely to be temporary.
3. Short term data highly variable due to the impact from COVID-19.
4. Uneven global recovery.
5. Trans-Tasman travel is two way, so some spending will be abroad. Will it be equalled by those visiting New Zealand?
6. Sometime is expected before the targets of maximum employment and inflation above 2% is met.
7. Is prepared to use negative inflation if necessary. (However, this is unlikely at this stage, so very theoretical).

The ugly

1. Name change. It is hard enough keeping up with all the acronyms and names as it is. The RBNZ is changing the phrase ‘OCR’ (Official Cash Rate) to MPR (Monetary Policy Review). This is to reflect that the RBNZ is using the LSAP and FLP programmes alongside the interest rate.
2. There were quite a few comments regarding housing. Part of the remit was given by the New Zealand Finance Minister regarding the central banks’ influence on house prices. There were a couple of paragraphs in the statement where the RBNZ seemed to explain the pro and cons of their policy on housing markets. It seemed problematic and it’s unlikely the RBNZ will want this happening again.

Read the full RBNZ report here

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What’s most important to markets right now? Vaccines
by Giles Coghlan, Chief Currency Analyst, HYCM

The news last week that Johnson and Johnson’s vaccine caused blood clots sent a shiver down markets mid-week. However, once the headline was digested it was realised that there were still vaccine alternatives to replace J&J’s even if there was a delay in the rollout.

White House confirms vaccine coverage

This was underlined by White House COVID Coordinator Zients who stated last week that there is plenty of vaccine supply in the system, even without J&J’s COVID-19 vaccine and that the US Gov’t is doing everything it can to accelerate the Pfizer and Moderna vaccines.

Ok, panic over. The dip was bought on the headline last week.

However, it is interesting to note that in stark contrast to the inflation fears, which came to nothing last week, the market remains laser-focused on the vaccine rollout. So, right now, vaccines matter most.

One interesting headline from last week that could be lost in the mix is the fact that Novavax will be taking part in an Oxford University study comparing mixed COVID-19 vaccine combinations from different manufacturers. The idea of the study is to explore any potential possibility there is of mixing doses. This will be extremely helpful if a ‘mix&max’ combination is possible and should help speed up the vaccination process and reward manufacturers who can supply the most quickly. One report to look out for as it could give risk assets a positive boost if the study proves positive. The current levels of people who have received at least one vaccine can be seen here below. You can search the chart yourself here too.


The key impact of any significant delay/problem in the vaccination program would be a sell-off in equity markets.


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Seasonal Insights American Express 19.04.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Strong seasonals ahead for American Express - Listen on Youtube

American Express is entering a strong time of year. Over the last 15 years, the stock has risen 14 times between April 19 and May 02. The largest return was +43.73% in 2009. The largest loss was -4.36% in 2018. The average return has been +5.78% over the last 14 years and the annualised return is a huge +397.17%.

Is now the time to buy American Express stocks as the stimulus cheques see major purchases? Earnings are due on the 24th of April, so this could be an ideal time to buy.

The American Express Company is a multinational financial services corporation headquartered at in the Financial District of Lower Manhattan in New York City. The company was founded in 1850 and is one of the 30 components of the Dow Jones Industrial Average.

Trade Risks: There is a growing risk that investors consider equity markets overbought and that could see a correction. It is hard to know when that correction will come, but investors need to be aware of the potential risk.

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Credit Suisse like a long GBPCHF
by Giles Coghlan, Chief Currency Analyst, HYCM


Credit Suisse & Natwest see GBPCHF buyers
The rationale is as follows:

1. The UK is in the first position in its vaccine race out of Switzerland and other European countries. This gives it a chance of topping the major economy recovery rankings for 2021.
2. The recent bout of GBP weakness against the USD at the start of April has been linked to a technical reversal of extended long positioning against funding currencies like JPY, CHF, & EUR rather than a more negative assessment of the UK economy.
3. Euro is tipped lower against the USD and the Euro by Capital Economics and Goldman Sachs who give ‘domestic vulnerabilities’ and Franc’s low yielding return as reasons.
4. The SNB will struggle to meet their 2% inflation target as the strong CHF has meant that Swiss imports are cheap.

Technical

One obvious area to take a GBPCHF long from is marked on the chart below.

The GBPUSD saw some decent buying into the end of last week and fundamentally the GBP still has reasons for strength. Over 50% of the UK has now got some COVID-19 antibodies and the vaccination programmes are progressing very quickly. The nine most vulnerable groups have now received at least one vaccine and that has resulted in much lower mortality and case rates out of the UK. You can see that in the last 7 days those testing positive has fallen by nearly 3.0%, deaths by nearly 30% and patients admitted by around 13%. The UK economy is now well placed to start using some of those £150 billion worth of savings accumulated during the lockdown months.



Trade Risk

May’s Scottish national elections is a risk for further calls for Scottish independence. However, the UK Gov’t should provide pretty stiff resistance to any notion of a second referendum.

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Seasonal Insights Expedia 20.04.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Strong seasonals for Expedia! Listen on Youtube.

Attached Image (click to enlarge)

Expedia is entering a strong time of year. Over the last 15 years, the stock has risen 11 times between April 20 and May 02. The largest return was +43.52% in 2009. The largest loss was -10.37% in 2013. The average return has been +6.62% over the last 15 years and the annualised return is +595.29%.

Is now the time to buy Expedia stocks? Will excitement about returning to holidaying again prove to a strong tailwind for stocks?

Expedia Group is an American online travel shopping company for consumer and small business travel. Its websites, which are primarily travel fare aggregators and travel metasearch engines, include Expedia.com, Vrbo, Hotels.com, Hotwire.com, Orbitz, Travelocity, trivago and CarRentals.com

Trade Risks: There is a growing risk that investors consider equity markets overbought and that could see a correction. It is hard to know when that correction will come, but investors need to be aware of the potential risk.

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Bloomberg Intelligence sees corn at $5 a bushel by year-end
by Giles Coghlan, Chief Currency Analyst, HYCM

Corn has been on a strong run higher over the last months in line with commodities generally. Vaccine optimism, reflation expectations, and a weak USD have all lifted commodities. Corn, a food staple, has been no exception.

The good times to end?

However, Bloomberg Intelligence sees this trend coming to an end. Here is their thinking:

1. Corn may be elevated as crude oil

Having hit the highest prices in eight years they expect corn to follow the path of crude oil which they have as ending its recovery around $70 a barrel. They see corn and crude oil-linked via bio-fuels (~40% of the U.S. crop is used for ethanol production). Bloomberg intelligence expect response selling in corn as the front corn futures approaches $6 a bushel, but the December 2021 contract is trading at $5 on April 15. They see a greater risk of the front future moving to below $5 than sustaining above $6.



The most compelling point is one of context. The 10-year average corn price is about $4.50. So, subject to drought, the price is more likely to move to the mean as year-end approaches.

2. Corn in backwardation

Backwardation is hitting the extremes with the one year curve reaching the most extreme valuation since 1996 and 2013. The corn curve, at around 12% backwardation at April 15, compares with the 10-year average closer to 4%.



3. Bullish commodities are seen as bearish innovation drivers

Innovation is going to improve yields and boost supply. This is longer-term bearish price pressure on corn.

So, there you have it. Bloomberg’s Intelligence and their view on corn. A simple way to monitor corn is via a simple longer-term trendline. Get below and that is an ideal place to limit risk in a measured way.



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The key influences on the USD
by Giles Coghlan, Chief Currency Analyst, HYCM

Many traders when they start out looking at global macro trading find the USD hard to comprehend. Why? It has different drivers at different times and that can make it a hard currency to feel confident with. However, once you are aware of the drivers it goes from being this bizarre currency to a currency that is being pushed and pulled by different factors at different times. The Financial Source has put together a good break down of the factors driving the USD. They are shortened and summarised as follows:

1. Global risk & Reflation
As a safe haven, the USD has inflows when markets are really scared. (Think March 2020). Market focus now on global synchronised recovery and reflation environment (both usually USD negative). See here for an explanation of what the reflation trade is.

2. Fed policy
The Fed has loose monetary policy and on paper at least see no rate hikes until 2024. However, the US10 Y have been rising, growth prospects have been improving with a string of good data, and the dot plot has seen that some Fed members are starting to see normalisation (sooner rate hikes – though the majority position is still seeing no hikes until 2024).

3. Other Factors
Medium-term bias for the USD remains bearish, but USD strength at the start of the year was mean reversion. The USD going into year-end was the second-largest oversubscribed position in global macro trading.

Balancing these factors help understand the USD. The tricky part is that the market focuses on different aspects of the above at different times, so being tuned in day to day helps you spot the shift more easily.


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Bloomberg Intelligence: Dollar bears out there, but there is less of them
by Giles Coghlan, Chief Currency Analyst, HYCM

1. The dollar’s early rebound at the start of this year is not expected to last

BI conducted a survey around April 9-16 and found that ~60% of 121 respondents did not expect the dollar recovery to last. However, BI did note that there has been a reduction in the proportion of market participants embracing USD bearishness compared to their February 02 survey which saw 80% of respondents favouring selling.

2. Dollar bears to accelerate into year-end

Only 50% of the 121 respondents expect the dollar trade-weighted index to move lower by the end of June, but 57% expect the DXY will be lower by the end of the year.

By the end of 2021 here is what the survey respondents are expecting for year-end:

1. The USD is expected to down against the sterling (65%).
2. The USD is expected to down against the euro (61%).
3. The USD is expected to down against the yen (57%).

However, only 52% expect a higher EURUSD by the end of June and 60% see a higher GBPUSD by the end of June.

3. Yuan bulls to win out

Over half of the respondents still see the yuan outperforming even in a higher US yield context.

In this situation the China-US 10 year spread may further narrow from 150 bps, but if that happens BI expect the yuan’s carry appeal via FX forwards to be a tailwind to the yuan as loans the Fed holds rates through 2023 and contain the short end yield.

4. Dollar positioning

USD bear positioning has gone from overweight to underweight, so that is better for bears than at the start of the year when their call was overcrowded and overstretched.


So what does this mean?

It means the majority USD bearish case remains. However, there is a real risk here that a faster US recovery is not being priced. The risk is that the vaccines basically do their job in 6-9 months and economies roar back on pent up savings. The Fed then look at raising rates next year and that will shake out the USD bears. The fact that there are less bulls than in February tells that some of that scenario is, at the very least, being considered. Not one to act on now, as it is full of ifs, buts, and maybes. However, one to note.


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Market Mood USDCAD 23.04.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Expect USDCAD sellers - Listen on Youtube.



The CAD has been strongly supported over the last 24 hours after a bullish shift from the Bank of Canada. The CAD rose by its most since June 2020 against the USD. The Bank of Canada is now the first central bank to exit its stimulus program after it announced that asset purchases would be reduced from $4 billion a week down to $3billion a week. On top of this, the BoC brought forward its guidance expecting an interest rate rise in 2022 vs expectation of rate rise in 2023.

The USD is weak at the moment as the US 10 year yields have failed to rise despite a good run of recent US data including a stronger than expected US CPI print, US retail sales, NFP data, PMI manufacturing and services data. Many analysts and investors still see the medium-term outlook for the USD as bearish.

In these conditions expect USDCAD sellers on rallies.

Key Trade Risks:

1. Any further rise in Canadian COVID-19 cases will put a strain on this bullish outlook.
2. Any sharp falls in the oil markets on rising COVID-19 cases will weaken CAD.
3. If the FOMC meet next week and announce bond tapering, that will support the USD.

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Week Ahead: Global indices pulling back 23.04.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Global indices pulled back at the start of this week which was only to be expected after a very strong few weeks of gains. There was no particular catalyst to the moves lower. Although there are concerns over global COVID-19 case numbers the optimism surrounding mass vaccination should ensure dip buyers keep stepping in. As long as monetary policy remains loose and fiscal stimulus from Governments remain in place any dips lower will offer value for medium-term buyers. The key here is to avoid leveraged buys at elevated prices and manage risk carefully.

Other key events from the past week

1. CAD: Interest Rate Statement, April 21: The BoC made a hawkish shift this week. Bonds were tapered by $1B per week to a rate of $3B per week. GDP is now seen at +6.5% for 2021 vs +4.0% in January. This should mean USDCAD sellers on rallies as long as the Fed doesn’t start bond tapering next week.
2. COVID-19: Johnson & Johnson, April 13: The EU will not use its option for an extra 300 million doses of the AstraZeneca and Johnson & Johnson vaccine according to an EU source. This is due to blood clotting risks with these vaccines.
3. EUR: Interest Rate Statement, Apr 22: The ECB kept interest rates unchanged and asset purchases at the rate of €20 billion per month. The total envelope remains at €1.85 trillion. All in all, there was very little change by the ECB.

Key events for the coming week

1. US oil: OPEC+ Meeting, April 28: At the time of writing it was still not decided if the OPEC+ meeting will go ahead next week on Wednesday. US oil is vulnerable to rising COVID-19 cases which reduces demand, but will OPEC step in?
2. USD: Interest Rate Statement, Apr 29: The focus will be on the Fed’s dot plot. Are interest rates still not expected to rise until 2024? Will the Fed taper their bond purchases? The risk is for USD strength out of the meeting if bond tapering is announced next week. One event to watch!

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Bank of Canada; A Hawkish shift!
by Giles Coghlan, Chief Currency Analyst, HYCM

Quick refresher

Going into the BoC meeting the expectations were for a more bullish outlook. However, the concern at the start of last week was that rising COVID-19 cases in Canada would cause a so-called ‘dovish taper’. This was that the BoC would reduce bond purchases, but somehow talk down the CAD. It’s funny the knots that we can tie ourselves in trying to understand coming moves!

The event

In the event, the BoC was more hawkish than expected. These were the main bullish headlines:

1. Bond purchases reduced by $1 billion per week to $3 billion.
2. Interest rate rises brought forward to 2022 from 2023.
3. GDP forecast increased to 6.50% in 2021.

A few things to note

Firstly, the BoC was under some pressure to cut asset purchases as the central bank now owns more than 40% of outstanding bonds. Macklem said that if the BoC owned 50% that could have unsettling market consequences. So, in that sense, a taper was needed. This does not take away from the bullish message but provides some context for it.

The BoC is keeping a close eye on the housing market, as are most other central banks. They won’t want to get involved with controlling this, but if the BoC do then that will be a tailwind for CAD.

Further adjustments to the QE program are set to be gradual.

The whole outlook rests upon the vastest COVID-19 spread. So, it goes without saying, but that can be a drag on CAD strength expectations going forward.

What does it mean?

The BoC is the first central bank to signal that it will be exiting its stimulus package. This is a tailwind for CAD.

Which pairs to trade

The medium-term outlook for the USD remains bearish for now, so USDCAD shorts would be reasonable looking to fade rallies. An argument can also be made for CADCHF and CADJPY longs as the global recovery hopes should mean oil finds dip buyers (supporting CAD) and both the SNB and BoJ both have a very loose monetary policy.

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June could see bond tapering announcements
by Giles Coghlan, Chief Currency Analyst, HYCM

The last Bank of Canada interest rate meeting saw the BoC as the first central bank to start exiting easy monetary policy by unwinding some of its asset purchases program. $4 billion per week was trimmed to $3 billion per week and interest rate hikes were brought forward from 2023 to 2022.

The Bank of England started to look at the UK economy and delivery a rosier verdict. Deputy Governor Broadbent said he expects a ‘very rapid’ recovery, and perhaps the May 06 meeting is the time for tapering to start. Even the last BoE meeting was heading to the more optimistic side of things.

The last ECB meeting was a holding exercise. However, the stage is set for far more action in the June meeting where tapering is likely to be debated. We know ECB’s Knot is in favour of bond tapering, but he held his peace at the last meeting. This was understandable due to the precarious COVID-19 situation for Europe. However, looking ahead investors are seeing a vaccine recovery.

More pressure will be on the Fed to signal their tapering intention on June 17, so the central bank meetings in June could signal some great opportunities ahead. Taking a look at the reaction in the CAD when the BoC announced bond tapering should give a reason for some confidence. A huge move means that the stage is set for some volatility in the FX space over June. See the USDCAD chart below on the BoC taper.



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Are global indices now due a correction lower?
by Giles Coghlan, Chief Currency Analyst, HYCM

Global indices are increasingly vulnerable to a correction lower after stunning returns over the last 12+ months. The question that investors are asking is, ‘when will the inevitable correction in stocks come?’ Ultimately, the answer to that question is unknown. However, at times like this investors can use trendlines, percentage loss limits, and key technical barriers to place stops behind to limit risk. The one mistake investors must avoid is being over-leveraged at the very end of a bull market. Next month begins the weaker half of the year for stocks, so be aware of any deeper correction lower.

Other key events from the past week

1. USD: Interest Rate Statement, Apr 28: The Federal Reserve left policy unchanged and pushed back on early tapering expectations. Jerome Powell however did say that the recovery has occurred far quicker than expected. Watch out for possible further USDJPY strength over the next few weeks.
2. Bank of Japan: Interest Rate Outlook, April 27: The BOJ changed nothing at the latest meeting. Although they increased the GDP projections for this year, they also reduced inflation expectations. In conclusion, the BoJ are on hold for the foreseeable future and this should keep the JPY weak medium term.
3. AUD: Inflation data, Apr 28: The inflation data out of Australia was amiss at 0.6% q/q vs 0.9% expected. This sent AUDNZD lower through 1.0750 and the AUDNZD bond yield spread lower too.

Key events for the coming week

1. AUD: Interest Rate Statement, May 04: The last RBA meeting saw an abundance of caution. The latest employment data was a disappointment as full-time workers fell, so will the RBA maintain a cautious stance? Most likely they will.
2. GBP: Interest Rate Statement, May 06: The last BoE meeting was hopeful and last weekend Deputy Governor Broadbent signalled a ‘fast economic recovery’ for the UK. Will the BoE announce bond tapering next week and boost the GBP further?

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Sugar finds gains on production issues and bucks strong seasonals
by Giles Coghlan, Chief Currency Analyst, HYCM


Sugar to buck strong seasonal time of weakness? Listen on Youtube

Sugar prices have continued to rally recently with the no.11 July contract rallying by almost 3.9% on Tuesday of this week. The latest UNICA data has shown that sugar cane crushing in CS Brazil dropped 31% over the first half of April. Sugar production has fallen 36% year on year. On top of this, the sucrose content of the cane sugar was worse than expected falling 3.6% year on year. CS Brazil is still expected to see a drop in sugar output this season.

This has meant that the normally weak time of May for sugar is being called into question. Over the last 10 years, sugar has fallen 9 times between 30 April and May 07. The largest fall was in 2017 with a -4.95% drop. This strong seasonal trend may be reversed this year, so certainly one market to keep focused on.

Trade Risks: Any sharp pick up in sugar production numbers can weigh on prices.

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Is now the time to ‘Sell in May, and go away’?
by Giles Coghlan, Chief Currency Analyst, HYCM

The saying ‘sell in May, and go away’ is a well known Wall Street saying. The saying however is based on good evidence. If you take a look at the S&P500 over the last 71 years you will be able to see why.

Winter boost for prices

Holding the S&P500 from October 31 through to April 30 gives an average return of +6.27%. If you had taken this each year for the last 71 years it would have given you an annualised return of +13.04%. The win ratio would have been 77.14% and the maximum profit would have been 24.48%.


Summer sadness for stocks

The returns from May to October are less impressive. Now compare this to if you bought the S&P500 in May and held it until October 31. You would have had an average return of only +1.17%.


The conclusion

Over 71 years the S&P500 clearly sticks to the rule that it is better, over the long term, to sell in May and go away. Statistically, buying stocks from October 31. This is why many investors are wondering whether now is the time that stock markets will have a deeper correction lower. The seasonal dynamic may or may not play out this year. However, being aware of it is very helpful.

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Italian FTSE and the Draghi effect
by Giles Coghlan, Chief Currency Analyst, HYCM

The Italian FTSE may get a lift from Draghi’s plan

A recent piece on Bloomberg was making a case that the Italian FTSE is a decent place to make a play on the Italian stock market. The reasons were as follows:

1. Mario Draghi’s plan to improve the Italian economy is boosting its undervalued shares. Draghi went to Parliament last week and gave some details of his €248 Billion plan. This plan is mainly due to be financed by the EU’s post-pandemic recovery fund. According to Bloomberg even only around half of the planned reforms would attract investor capital. This would particularly boost small and mid-caps.

According to Antonio Amendola. Portfolio manager at Acomea Sgr, ’Italy really has an epochal opportunity with the Recovery Plan. Directly for the obvious investments, it will make, but also indirectly for the necessary reforms.

2. The Italian FTSE is trading at a relative discount to its European peers. The current FTSE MIB (Italian FTSE) forward price to earnings ratio relative is about 0.77%. This is just shy of the multi-year lows hit during the COVID-19 crisis of ~0.70%.


The argument against this is the feared correction in stocks that are generally feared. The summer months would be the obvious time for a correction. However, aside from the obvious, it is hard to pinpoint a correction in stocks. Any readers with some top tips please leave a message in the comments below. One perspective I have found helpful recently has been from Ray Dalio. He asks the following six questions:

1. How high are prices relative to traditional measures?
2. Are prices discounting unsustainable conditions?
3. How many new buyers (i.e., those who weren’t previously in the market) have entered the market?
4. How broadly bullish is sentiment?
5. Are purchases being financed by high leverage?
6. Have buyers made exceptionally extended forward purchases (e.g., built inventory, contracted forward purchases, etc.) to speculate or protect themselves against future price gains?

You can read his full piece here.

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Expect EURGBP sellers if BoE announces bond tapering
by Giles Coghlan, Chief Currency Analyst, HYCM

Attached Image (click to enlarge)

Listen on Youtube

The Bank of England is meeting today at 12:00 GMT. The expectations are that interest rates will remain unchanged and asset purchase levels will also stay the same. The key focus investors will be looking for is if the Bank of England taper bond purchases. If they do, and the Bank of England also bring forward interest rates, then immediate GBP strength can reasonably be expected.

The tricky element comes with finding which currency to pair a strong GBP with. The simplest option is probably the euro as the EURGBP is at a key technical weekly trendline.

If the Bank of England does taper, expect immediate EURGBP selling.

Key Trade Risks: If the Bank of England does not announce bond tapering then this trade outlook will not be viable.

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Labour data is now very important to the RBA
by Giles Coghlan, Chief Currency Analyst, HYCM

The RBA meeting this week was uneventful. The RBA kept the cash rate and three-year yield target unchanged at 0.10% while also keeping its QE program the same. The main headline remains the same for the RBA that conditions for accommodation are to remain until 2024. Unemployment is expected to decline to around 5% at the end of this year and to 4.5% at the end of 2022. Inflation is seen at 1.5% this year and 2% in mid-2023 with a temporary spike higher in June of this year to 3%. Like most central banks a spike higher in prices is expected to boost inflation temporarily post COVID-19. The decision was as expected and with the Federal Reserve remaining bearish it was very unlikely the RBA would push ahead of the Federal Reserve in the way that the Bank of Canada has done.

The takeaway

The main takeaway from the RBA is that employment data is one of the key metrics to look at going forward. Australia’s Treasurer Josh Frydenberg is wanting to re-focus Australia’s monetary policy to bring down unemployment to 4%. Until that figure has been hit the RBA will not be looking at cutting interest rates. This is a significant move as the chart below shows that unemployment has not been that below 4% since the early 70’s. The thinking is that inflation will not be hampered by a tighter labour market in the medium term. So, as a result, Australia should aim to get more people in the labour market to help outcomes for individuals.

You can read more on the details here.


Date for the diary: May 11

Exactly how this new strategy for unemployment will be worded is going to be unveiled on May 11. So, one date for the diary. So, from here on in, expect employment to get more and more focus. When that is going well, the RBA will be more bullish. When unemployment is rising the RBA will be more bearish. Knowing this steer on employment read the RBA minutes and you will see how it jumps out at you. Read here.

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What impact will CPI have on the outlook for the USD next week?
by Giles Coghlan, Chief Currency Analyst, HYCM

On Tuesday this week, markets were given a snapshot view of what will happen when the US actually do signal a rise in interest rates. It came about after Treasury Secretary Janet Yellen spoke about the need for the US to raise interest rates. Now the comment was taken out of context, but the market reaction was telling. Markets saw a sharp spike higher in the dollar, US 10 year yields, and downside in gold. This is a dry run rehearsal for what will happen if the Federal Reserve do signal tapering bond purchases this summer. Wise investors will take note for future reference.

Other key events from the past week

1. AUD: Interest Rate Statement, May 04: The RBA meeting this week was uneventful. The RBA kept the cash rate and three-year yield target unchanged at 0.10% while also keeping its QE program the same. However, labour data remains a key focus for the RBA going forward.
2. GBP: Interest Rate Statement, May 06: The decision was as expected with interest rates unchanged & asset purchases too. However, looking at the minutes, it is important to note that the BoE has adopted an optimistic outlook for the UK economy. This could provide support for the FTSE 100 from here.
3. FTSE100: Re-opening gains, May 06: Global indices fell lower on Tuesday, but there was no clear catalyst for the falls. As a result dip buyers stepped in. Some analysts consider the FTSE 100 remains undervalued and is on course to fill the gap to 7500 by year-end on re-opening gains. Will that be the case?

Key events for the coming week

1. USD: Inflation data, May 12: The Federal Reserve expect a temporary spike higher in inflation. However, a sharp move higher may have investors pricing in an early US interest rate rise which would support the USD.
2. Silver: Market in focus, May 15: The silver market is in keen focus right now as the investment group Crescat Capital maintain their bullish bias for the commodity. As long as the price remains above the key support level at 25.80 that should support buyers in the near term.

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GBPJPY dip buyers on optimistic undertones from Bank of England
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen on Youtube

Yesterday’s Bank of England MPC meeting was unremarkable. Interest rates and asset purchases both remained the same. However, looking at the minutes, the BoE has adopted a more optimistic outlook for the UK economy. The Bank of England is expecting the country’s GDP to fall by less than forecast back in February with the low Covid case numbers and success of the vaccine rollout clearly playing a big part in this. Crucially, there is an expectation that the estimated £150 billion of savings that consumers have accumulated over the past 14 months or so will steadily be released into the economy in the months ahead.

The JPY should remain weak as the BoJ has no plans for tapering and are likely to keep interest rates at very low levels for some time.

Therefore, it is reasonable to expect GBPJPY buyers on pullbacks or breakouts.

Key Trade Risks:

1. If there is a strong risk-off tone that will invalidate this outlook.
2. If equity markets sell-off sharply this will also invalidate this outlook and strengthen the Yen.

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