HYCM Market Insights & Trading Tips

AUDNZD sell bias after RBNZ 2022 rate hike forecast
by Giles Coghlan, Chief Currency Analyst, HYCM



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The latest RBNZ rate decision saw an important change. The first interest rate hike was brought forward to 2022. This also saw the rhetoric from the RBNZ that they could use negative interest rates disappear from their communication. This shift was unexpected, but not a total surprise as the recent data out of New Zealand had shown some good strength. Retail sales at the state of this week surprised to the upside coming in at 2.5% versus -1.6% previous. This decision saw immediate NZD strength.

The Reserve Bank of Australia is trying to target very low unemployment levels and looks unlikely to reach these levels of around 4% (currently 5.5%) until 2024. So, this means that divergence is in place with the RBA and the RBNZ.

The bond yield spread between the AU10 y and NZ 10 y has sharply fallen indicating that more downside in the AUDNZD pair is ahead. Therefore, there is a near term selling bias for the AUDNZD.

Key Trade Risks:

1. Any significant shift in central bank policy from the RBA or RBNZ.
2. Any pick up in COVID-19 cases.
3. Any sharp difference in economic data between Australia and New Zealand.

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Markets in a holding pattern on a calendar light week

by Giles Coghlan, Chief Currency Analyst, HYCM

A very quiet week in terms of the economic calendar. The general medium-term upside bias for global indices remained supported for the most part of this week. However, global indices are extended and many analysts expect a pullback at some point. The USD saw some mixed action and the talk of whether the Federal Reserve will taper bond purchases should continue to push and pull the USD. US 10 year yields dropped lower through the 1.60% level and if this remains next week then the USD bearish bias could continue. Bitcoins falls moderated this week on long term investors stepping in and it looks like $30,000 is a near term floor.

Other key events from the past week

1. NZD: Interest Rate meeting, May 26: The last CPI data print surprised to the upside and Retails Sales data this week was strong. This allowed the RBNZ to signal interest rates hikes coming from September 2022 strongly boosting the NZD this week. AUDNZD saw a strong downside as expected.
2. DXY: Two drivers, May 24: The USD is being driven by two things; expectations of bond tapering and inflation expectations. As long as the Fed is looking like tapering then the USD will find buyers. If they retreat from tapering then the USD will find further selling. Focus on tapering talk to understand the USD.
3. Bitcoin Base: Finds support, May 25: Tesla’s CEO Elon Musk helped support Bitcoin this week tweeting about N.American Bitcoin miners wanting to address environmental concerns around Bitcoin mining. Is $30,000 the base for now?

Key events for the coming week

1. AUD: Interest Rate meeting, June 01: The last set of RBA minutes show a keen focus on unemployment data. No change is expected next week in interest rates and a bearish meeting will likely accelerate further AUDNZD selling next week.
2. OPEC: More upside for oil? June 01: Investors will be watching the OPEC+ meeting carefully for any signs of supply cuts to further boost oil. Will price break and be able to stay above $68 or will that cap US oil prices for now?

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Markets in a holding pattern on a calendar light week
by Giles Coghlan, Chief Currency Analyst, HYCM


A very quiet week in terms of the economic calendar. The general medium-term upside bias for global indices remained supported for the most part of this week. However, global indices are extended and many analysts expect a pullback at some point. The USD saw some mixed action and the talk of whether the Federal Reserve will taper bond purchases should continue to push and pull the USD. US 10 year yields dropped lower through the 1.60% level and if this remains next week then the USD bearish bias could continue. Bitcoins falls moderated this week on long term investors stepping in and it looks like $30,000 is a near term floor.

Other key events from the past week

1. NZD: Interest Rate meeting, May 26: The last CPI data print surprised to the upside and Retails Sales data this week was strong. This allowed the RBNZ to signal interest rates hikes coming from September 2022 strongly boosting the NZD this week. AUDNZD saw a strong downside as expected.
2. DXY: Two drivers, May 24: The USD is being driven by two things; expectations of bond tapering and inflation expectations. As long as the Fed is looking like tapering then the USD will find buyers. If they retreat from tapering then the USD will find further selling. Focus on tapering talk to understand the USD.
3. Bitcoin Base: Finds support, May 25: Tesla’s CEO Elon Musk helped support Bitcoin this week tweeting about N.American Bitcoin miners wanting to address environmental concerns around Bitcoin mining. Is $30,000 the base for now?

Key events for the coming week

1. AUD: Interest Rate meeting, June 01: The last set of RBA minutes show a keen focus on unemployment data. No change is expected next week in interest rates and a bearish meeting will likely accelerate further AUDNZD selling next week.
2. OPEC: More upside for oil? June 01: Investors will be watching the OPEC+ meeting carefully for any signs of supply cuts to further boost oil. Will price break and be able to stay above $68 or will that cap US oil prices for now?

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What did we learn from the last RBA decision?
by Giles Coghlan, Chief Currency Analyst, HYCM

The Reserve Bank of Australia has taken a decisive step to try and drive unemployment very low. The current rate is 5.5% and the RBA would like to see this drift down towards the 4% level. This emphasis on a return to full employment was once again seen in the latest RBA minutes. Here are the headlines:

1. No rate hikes until actual inflation are within 2-3% range and supportive monetary conditions (low rates etc) to be maintained in order to support a return to full employment and for inflation to be consistent with this target
2. The labour market is not expected to be tight enough to spur higher age growth (and therefore inflation with it) until 2024.
3. Significant outbreaks of the COVID-19 virus remain, but as more people get vaccinated this risk should fade.
4. Still sees inflation in underlying terms remaining low and underneath the central bank targets.
5. Economic recovery is stronger than earlier expected and is forecast to continue. The Bank’s central scenario is for GDP growth by 4.75% and 3.5% over 2022.
6. Progress in reducing unemployment has been falser than expected with unemployment expected to drop to around 5% by the end of this year.

The takeaway

We have written before on this bearish outlook from the RBA trying to drive unemployment back down to 4%. This remains the case and should keep the RBA on hold even while other central banks start raising rates. So, one of the key economic points to look at going forward is the unemployment rate. Fast progress here and this is what will move the RBA’s dial. Say, we got a surprise jump down to below 5% then that should bring forward the RBA interest rate projections and trade would be to buy the AUD a few days or even just the day before the next rate meeting. This also maintains an AUDNZD sell bias as long as the RBA and the RBNZ central banks diverge. However, watch out for the bond yield curve between the AU10Y and the NZ10Y. See the chart below. Full RBA minutes here.

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Strong seasonal pattern for Illumina
by Giles Coghlan, Chief Currency Analyst, HYCM

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The broad conditions for equity buyers remain in place. Easy central bank monetary policy and broad fiscal stimulus mean conditions are suitable for further equity gains. However, investors need to be aware that markets have been trading at elevated levels and are struggling to make new highs despite strong earnings.
Will Illumina move higher in keeping with its very strong seasonal pattern this year? Over the last 15 years, Illumina has gained in value eleven times between June 02 and July 01. The largest gain was in 2019 with a huge 22.04% profit.

Illumina is an American company incorporated in April 1998. Illumina develops, manufactures, and markets integrated systems for the analysis of genetic variation and biological function. Summer months can be good months for releasing the latest product developments and proposals. Will Illumina’s strong seasonal pattern lift its share prices again this year?

Major Trade Risks:

The main risk to this trade is from any risk-off tones which will weigh on equity prices.
A fast rise in US inflation could result in bond tapering which would potentially weaken Illumina share price if US interest rates are expected to rise.

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Time for a USD correction on Fed taper hopes?
by Giles Coghlan, Chief Currency Analyst, HYCM

This was a busier week on the economic calendar and there was considerable data for the USD. The USD has been on a steady decline since the middle of last year driven by reflation expectations that typically drive the USD lower. The US also has a deficit in its current account balance which means the US imports more than it exports. This keeps the USD weak as dollars are exchanged for foreign currencies. The one big question in investors minds remains whether the Federal Reserve will signal earlier interest rate hikes than 2024. Expect this story to keep driving the USD through the summer weeks.

Other key events from the past week

1. AUD: Interest Rate meeting, June 01: The RBA’s meeting saw no change in the stance that the RBA will not be raising interest rates until 2024. This keeps an AUDNZD selling bias in place after the RBNZ’s hawkish shift last week. This is a position also advocated by JP Morgan this week.
2. USD: ISM Manufacturing, June 01: The ISM manufacturing index rose higher coming in at 61.2 vs 60.9 expected. However, one worry was hidden in the sub-components as some difficulty was noted by companies struggling to fill jobs.
3. Gold: Driven by real yields: Remember that when real yields fall lower, that drives gold prices higher. The one big risk to gold’s recent rise higher is any news of bond tapering from the Federal Reserve. That would cause real yields to rise and pressure gold prices.

Key events for the coming week

1. CAD: Interest Rate meeting, June 09: The question for the Bank of Canada will be if they address CAD strength. Governor Macklem recently stated that if the CAD moves a lot higher it could have a ‘material impact on its outlook and how we set monetary policy. Watch out for potential USDCAD gains post the BoC.
2. Oil: Key week for oil prices, June 11: Investors will be watching Iranian nuclear talks which are set to resume next week. If talks break down the reduced supply for US oil markets could send West Texas Intermediate higher towards $75.

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EURNZD sellers expected into ECB rate meeting on Thursday
by Giles Coghlan, Chief Currency Analyst, HYCM


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80% of Bloomberg economists surveyed ahead of the ECB meeting see the PEPP programme remaining unchanged. This is in keeping with recent rhetoric out of the ECB with ECB’s Schnabel saying that premature removal of ECB support would be a ‘great mistake’. So, anticipation heading into the ECB rate meeting is for an ‘on hold’ meeting.

In contrast, the NZD has seen some strength since the shift from the RBNZ at their last rate meeting. At the last RBNZ rate meeting, the asset purchases (LSAP programme) were unchanged, the interest rate kept at 0.25%, but the key signal was a forward rate forecast pointing to a 25bps rate hike in September 2022. This decision was a surprise and a hawkish tilt to the NZD. The RBNZ is also slowing bond purchases next week by NZ$100m which is the first reduction since April. This should keep the bond yield spread pressed between German Bunds and New Zealand 10 year yields.

Therefore, there is a near selling bias from market into the ECB rate meeting on Thursday, June 10.

Key Trade Risks:

1. The main risk to this trade is from any unexpected COVID news impacting either New Zealand or the eurozone.
2. A rise in the German Bund and NZ10 year bond yield spread ahead of Thursday.

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RBA: Thunder coming down under?
by Giles Coghlan, Chief Currency Analyst, HYCM

RBA meeting for July

The July meeting is key for the Reserve Bank of Australia (RBA) because it is the place where key decisions will be made about the QE programme and whether the current yield curve control will be maintained.

A Bloomberg piece flags up a warning here that RBA’s Governor Lowe has taken the unusual step of arranging a press conference one and a half hours after the RBA decision. Why? This allows the Governor time to see how bonds react to his tapering announcement and the fact that yield curve control will be coming to an end. It is what is called a ‘parachute meeting’. Designed to halt the terminal fall in bonds.

This is a great point by the Bloomberg rates analyst Stephen Spratt. He also goes on to point out that the groundwork has already been set in the latest RBA statement where the following line was removed from the policy decision, ‘prepared to undertake further bond purchases to assist with progress towards the goals of full employment and inflation’.

Mixed picture

Yet the RBA are also some way from their target of full employment and inflation in the 2-3% range. The desire for the RBA to reach 4% unemployment means that no rate hikes may be expected until 2024 still. However, it does look like the ground is being set now for some kind of exit from easy monetary policy. If the RBA see strength in the labour market that could also give them the confidence to bring forward rate hikes and could see them join the ranks of the BoC and the RBNZ. It will be worth looking at Australian 10-year bond yields heading into the July meeting.


It could also be worth buying AUD the night before the decision depending on sentiment at the time and manage risk as always.


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Time for Pepsi shares to fizz?
by Giles Coghlan, Chief Currency Analyst, HYCM



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The broad conditions for equity buyers remain in place. Easy central bank monetary policy and broad fiscal stimulus mean conditions are suitable for further equity gains. However, investors need to be aware that markets have been trading at elevated levels and are struggling to make new highs despite strong earnings.
Will PepsiCo move higher in keeping with its very strong seasonal pattern this year? Over the last 15 years, PepsiCo has gained in value eleven times between June 08 and July 07. The largest gain was in 2018 with a 5.14% profit.

Summer months can be good months for soft drinks companies as demand picks up. Will this be the same again this year?

Major Trade Risks:

1. The main risk to this trade is from any risk-off tones which will weigh on equity prices.
2. A fast rise in US inflation could result in bond tapering which would potentially weaken PepsiCo’s share price if US interest rates are expected to rise.

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What’s the trade on the Bank of Canada meeting?
by Giles Coghlan, Chief Currency Analyst, HYCM

The base case

No change in rates or asset purchases. Remember that at the last meeting the BoC changed their asset purchases from $4 bln per week to $4 bln per week. Further adjustments were expected to be outcome-based and after the last meeting jobs took a fall in Canada. However, the reason for the jobs fall was the return to lockdown measures. Job postings still remain robust. Bloomberg notes strong job openings through May and note at restrictions on in-person activity is set to ease later in June. Furthermore, stay ay home orders in Ontario are lifting.

1. QE pace is expected to be further reduced in July with an outside chance of the following meeting. So, any taper of bonds at this meeting would be a bullish twist and USDCAD weakness out of the release.
2. Around inflation, the BoC may recognise the near term upside pressures. The BoC see a fall below 2% in 2022 as companies operate with the reduced demand due to COVID-19, but a return to 2% in the second half of 2022. This is an area to watch as the rise in commodity prices could see a revision to this inflationary forecast. This also could represent a bullish twist, but watch for the language about what the BoC will do regarding any inflationary pressure. They may explicitly decide to ignore it for example.
3. The bottom line is that the last two weak jobs reports will keep the BoC on hold for now and the first-rate hike is more likely to be reasonably anticipated in 2023. December 2023 futures are pricing in around five 25 bps rate hikes which is two more hikes than is expected for the Fed.

What’s the trade?

1. Any bond tapering is a CAD buy. CADJPY long or USDCAD short are worth considering.
2. Any concern expressed about CAD strength and dovish language and a USDCAD long would probably be best as the USDCAD pair is quite well extended to the downside.
3. Any interest rate projections brought forward will be CAD bullish as it will be a further signal of the BoC exiting easy monetary policy.

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Microsoft shares are seasonally strong now
by Giles Coghlan, Chief Currency Analyst, HYCM


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The broad conditions for equity buyers remain in place. Easy central bank monetary policy and broad fiscal stimulus mean conditions are suitable for further equity gains. Also, tech stocks that form part of the Nasdaq 100 have seen great gains due to COVID-19 induced lockdowns. However, investors need to be aware that markets have been trading at elevated levels and are struggling to make new highs despite strong earnings.

Will Microsoft move higher in keeping with its very strong seasonal pattern this year? Over the last 15 years, Microsoft has gained in value twelve times between June 09 and June 19. The largest gain was in 2009 with a 9.01% profit. Will some of these gains be repeated again?

Major Trade Risks:

1. The main risk to this trade is from any risk-off tones which will weigh on equity prices.
2. A fast rise in US inflation could result in bond tapering which would potentially weaken Microsoft Co’s share price if US interest rates are expected to rise.

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The bull and bear cases for global equity markets
by Giles Coghlan, Chief Currency Analyst, HYCM


Here is a collection of some of the arguments for equity selling and further buying.

The buy side

1. The broad fiscal policies have prevented business failures and also kept savings supported which allows countries to bounce back quickly.
2. The Q1 results were very good and pushed earnings forecasts higher. UBS, for instance, expects global earnings to grown 38% vs a previous estimate of 31%.
3. The Fed is happy to let markets run hot. With the Fed adopting an average inflation target and being prepared to watch inflation overshoot a little, it shows that they are not in a big rush to push interest rates higher.
4. The US is still trying to push through a $1.5+ trillion infrastructure package, so more stimulus is in the pipeline
   European equity markets (like the FTSE100) still offer some value for stock investors.

The sell side

1. As stimulus starts to wind down, equities look shaky with some at elevated levels.

1. There is a stock rotation into the Russell 2000 as it flirts with all-time highs at the time of writing.
2. If US inflation is NOT transitory then the Fed will be forced to raise rates. (Raising rates mean business conditions are less attractive and we will likely see a rotation out of equities into bonds).
3. Pension providers have been short of the funds needed to meet their obligation for some time now. This was forcing them to seek gains in riskier places. However, the recent gains in equities mean that some of those cash targets are being met. This means that pensions can now take that cash, buy long term bonds to match all their obligations with retirees in a process known as immunization. This is a key principle of liability-driven investing. See the Bloomberg piece here.

The takeaway

Global equities need a catalyst to correct, so wait for it. If you have made considerable gains look to lock them in/ technical areas to exit. If you are considering rejoining stocks just keep it very tight and lean against key levels.
This is not the time to buy at any old price as a correction is anticipated.

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GBPJPY could be set for strong gains over the next two weeks
by Giles Coghlan, Chief Currency Analyst, HYCM



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Yesterday Andy Haldane, the Bank of England’s Chief Economist, said that the UK economy is going “gang busters” and that the UK is already seeing “pretty punchy” price pressures. He commented that the BoE could start tightening the tap on QE. If the BoE does this it is the first step towards policy normalisation and rising interest rates. The next BoE meeting is on June 24 and therefore expectations are rising that the BoE will announce the start to bond tapering then following in the BoC’s lead.

The JPY is a risk haven currency and typically sees weakness during times of global optimism. Global optimism is currently being fuelled by widespread vaccine hopes and that should keep the JPY pressured near term.

Key Trade Risks:

1. The main risk to this trade is from any unexpected COVID news which causes the JPY to strengthen.
2. A sharp rise in US inflation could cause US 10 year yields to move sharply higher and that could result in risk-off trading if the move is hard enough.

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US inflation runs hot but investors believe the Fed will stay on hold
by Giles Coghlan, Chief Currency Analyst, HYCM

The week started quietly ahead of the Bank of Canada’s and the European Central Bank’s interest rate meetings midweek. See below for more details on those. Equity markets remained supported and, as long as the Federal Reserve doesn’t signal earlier interest rate hikes next week, the Fed’s accommodative policy should keep dip buyers interested. However, investors need to be aware that the S&P500, the Dow, the Nasdaq and the DAX are all trading around record highs. Therefore, keep on top of risk and don’t over-leverage in these types of extended markets.

Other key events from the past week

1. CAD: Interest Rate Meeting, June 09: The BoC’s meeting saw no change this week as expected and the BoC were keen to have a ‘holding’ week. The USDCAD pair was mildly supported out of the meeting, but the pair looks vulnerable to a retracement higher, especially on any reasons for USD strength
2. EUR: Interest Rate Meeting, June 10: The ECB also kept a ‘steady hand’ this month. The General Council are more optimistic about the outlook than 3 months ago and they see a strong rebound from Q2. However, will this lift the euro?
3. Bitcoin: Will $30,000 hold? Bitcoin’s key level is the $30,000 support zone on the weekly chart. If it holds then a retest of $40,000 looks more likely than a fall down to $20,000. However, as always, be prepared for Bitcoin volatility!

Key events for the coming week

1. USD: Interest Rate meeting, June 16: There is one fundamental question in the market’s mind. Will the Fed taper? Any hint of tapering from the FOMC this week and expect USD strength. However, if the Fed stay on hold and are more dovish then expect gold strength.
2. AUD: Key employment data, June 17: Investors will be watching the unemployment rate very carefully next week. If unemployment drops below 5% that should provide strong support for the AUD.

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What did we learn from the BoC?
by Giles Coghlan, Chief Currency Analyst, HYCM


In a sentence, not a great deal. This was expected to be a ‘holding meeting’ by the BoC and that was pretty much what it was. Rates kept at 0.25% and QE at $3 billion per week. The main headline bullet points reported were:

1. Economic developments have been largely in line with the outlook from April’s monetary policy outlook.
2. Commodity prices have risen further, notably oil, and the CAD has seen a further appreciation.
3. The BoC is committed to keeping the interest rate at the effective lower bound (0.25%)until economic slack is absorbed and 2% inflation is achieved.
   The BoC see interest rate rises in the second half of 2022.
4. Inflation is expected to remain near 3% over the summer but ease later in the year.
5. Strong growth in foreign demand and higher commodity prices should also lead to a solid recovery in exports and business investment.

A couple of things to note

1. The BoC noted that core inflation had risen less than CPI inflation. Central banks will be keeping a close eye on inflation to ensure it doesn’t run out of control.
2. Employment was mentioned and low wage workers, youth, and women continue to bear the brunt of job losses. After the April BoC meeting, there were two disappointing job prints in a row. This was due to the rising COVID-19 cases in Canada. However, job openings remain strong, so jobs should pick up from here as Canada is quickly vaccinating its citizens.
3. This broadly keeps alive the expectations of bond tapering for the BoC in July. The BoC say that ‘decisions regarding adjustments to the pace of net bond purchases will be guided by Governing Council’s ongoing assessment of the strength and durability of the recovery’.

USDCAD pretty flat out of the meeting and USDCAD could be due a retracement from here.

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Netflix shares have a great seasonal pattern ahead
by Giles Coghlan, Chief Currency Analyst, HYCM

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This week the Federal Reserve meet and they are expected to stay on hold while repeating their belief that rising inflation is transitory. The latest US CPI data last week surprised heavily to the upside with both the month on month and the year on year data coming in above market maximum expectations. The core reading was +3.8% vs a maximum +3.6% expected for the year on year print and the headline came in at 5% vs a maximum expectation of 4.9%. So, the key question this week is this: Will the fed still see the rising inflation as transitory. If it does that could allow equity markets to keep rising.

Will Netflix move higher in keeping with its very strong seasonal pattern this year? Over the last 10 years, Netflix has gained in value every single time between June 10 and July 10. The largest gain was in 2012 with a 27.35% profit. Will Q2 earnings surprise to the upside? Will Netflix keep rising through June?

Major Trade Risks:

1. The main risk to this trade is from any risk-off tones which will weigh on equity prices
2. The recent gain in US inflation could mean the Fed taper bond purchases next week. If they do then the prospect of rising interest rates could weigh on US stocks.

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What to expect from the Federal Reserve tonight
by Giles Coghlan, Chief Currency Analyst, HYCM


The bottom line is that no change is expected tonight in terms of interest rates or bond tapering. However, the interesting part of tonight will be on the economic and inflation forecasts along with the interest rate projections. Here is what a survey of 51 economists expects who were surveyed between June 04-June 10.

Bloomberg Economists

1. Greater than half of the economists surveyed expect the Fed’s ‘dot plot’ to show an earlier lift-off for rates in 2023.

1. 2 out of 5 (40%) expect the Fed to take its first step in tapering monthly bond purchases in August at the Jackson Hole Symposium (August 26-28).
2. One third expect a tapering announcement in September and another third say December.

Labour targets?

The Economists surveyed expect the Fed to be generally upbeat about the robust economic rebound this year. However, bond tapering is expected when unemployment is around 5% and inflation is at 3% as measured by the personal consumption expenditure price index. The April core PCE deflator reading came in at 3.1% y/y, the highest since 1992, but unemployment is still too high. There have been two main reasons that labour supply is weak.

1. Lack of child care issues and home-schooling which means some parents had to stay at home
2. Extended unemployment benefits mean the urgency to return to work has been reduced. These benefits are set to continue until September.

Risk of overheating

Higher inflation numbers have shifted the risks to the economic outlook with 65% of those surveyed seeing a risk of the US economy overheating due to an accelerating US vaccination program and fiscal stimulus set to rise with Joe Biden’s infrastructure and jobs plan.

The takeaway

The USD is trying to bottom and the Fed should signal a slightly better picture. The obvious USD buy trade would be if bond tapering is announced or a timescale hinted at. A shift in the dot plot will also likely help lift the USD too. The risk looks asymmetric for USD strength and the USDCAD pair looks due for some retracement.

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Dollar soars on Fed’s dot plot shift
by Giles Coghlan, Chief Currency Analyst, HYCM

Markets started the week unusually subdued as even the previous week’s high US CPI print failed to see investors excited. Some analysts wonder if the summer lull has come early and very narrow ranges over the last couple of weeks lend strength to that view. The key meeting of the week was the Federal Reserve meeting and that resulted in a good dose of volatility coming back into the markets as the USD soared. The Fed’s meeting was a clear hawkish shift and this opens up dollar strength in the near term and expectations of Fed bond tapering at their next rate meeting on July 28.

Other key events from the past week

1. USD: Interest Rate Meeting, June 09: This hawkish meeting saw the Fed’s dot plot signal an early rate hike in 2023. As long as real yields keep tracking higher this opens up a near term sell bias in gold and a USDJPY buy bias.
2. CAD: Inflation data, June 10: The CPI print was+ 3.6% vs +3.5% y/y. Furniture prices rose +9.8% the highest since 1982. The question is if the BoC consider this transitory or whether interest rate hikes are needed going forward?
3. Bitcoin: Twitter & Elon Musk, June 13: Bitcoin found support as Elon tweeted, ‘When there’s confirmation of reasonable (~50 percent) clean energy usage by miners with the positive future trend, Tesla will resume allowing Bitcoin transactions’.

Key events for the coming week

1. GBP: Interest Rate meeting, June 16: The latest UK CPI print came in hot at 2% y/y vs 1.5% y/y expected. The UK housing market is also soaring higher, so is this the time the BoE tapers bond purchases and lifts the GBP? However, if the Fed stays on hold and is more dovish then expect gold strength.
2. Oil: OPEC, June 17: US oil has been moving higher on rising oil demand hopes for the second half of this year. Will OPEC once again support the oil markets with the way they cleverly set their production levels?

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Federal Reserve: Full steam ahead on inflation risk fears
by Giles Coghlan, Chief Currency Analyst, HYCM

USD strength after Hawkish ‘dot plot’ shift

The latest FOMC meeting saw a hawkish tilt that the market had not been expecting. Going into the meeting there was anticipation that a hawkish outcome could involve projections for a 2023 median rate hike. In the end, the dot plot saw more members opting for earlier rate hikes in this meeting than last.

1. June meeting – 7 saw hikes in 2022 – 13 saw hikes in 2023
2. March meeting – 4 saw hikes in 2022 – 7 saw hikes in 2023

This sent US 10 year yields higher, the USD higher and gold and the EURUSD lower.

Other hawkish elements

In the press conference Fed Chair Powell recognised that ‘inflation could turn out to be higher and more persistent than we expect’. This is a nod to the recent strong run of CPI data that has come out. Some in the Fed are clearly concerned that inflation may not be transitory. However, although the inflation projections for this year for Core PCE rose to 3.0% from 2.2% the 2022 forecast was only revised slightly higher to 2.1% and the 2023 forecast remained unchanged. This means the core Fed message is that the majority still expect inflation to be transitory. Powell pointed out that the forces weighed on inflation for the last 25 years are still in place.

Powell was upbeat surrounding the labour market stating that ‘it is clear we are on a path to a very strong labour market’.

Bearish elements

Fed Powell stressed that the recovery is still incomplete and the pace of the labour market improvement is uneven.

What about Bond tapering?

Well, clearly with rate hikes being pencilled in sooner we are moving closer to talk about bond tapering. Powell said that this June meeting was the ‘talking about talking about’ tapering meeting. Powell said that it will be ‘appropriate to consider a plan for tapering at the coming meeting if progress continues’. So, the next Fed meeting is clearly looking like the time to talk about a tapering plan.

The takeaway

Dollar strength and gold weakness. USDJPY longs look good on retracements and any moves back up to $1860 in gold look very good for sellers, For the USDJPY pair keep an eye on us10 year yields and for gold keep an eye on real yields.

Gold and real yields

USDJPY and US 10 years

Attached Image (click to enlarge)

Attached Image (click to enlarge)

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