Around and round and up down we go again
Thursday 5 May 2022
Last night the US Fed hiked rates by 0.5% as expected but took 0.75% hikes off the agenda and we saw a fall in the Greenback per my comment here yesterday " With such hawkish expectations it's clear that price reaction risk is to the dovish side if they fail to deliver. As always we need to wait and see what's been actually priced in." Some recovery since as markets keep second-guessing and good two-way business to be had while the jury remains out. Powell pointed to two further 0.5$ hikes at next meetings.
Looks like a similar story today as the BoE announces their latest decision at 12:00 BST with Governor Bailey presser 30 minutes later. Market is pricing around 30bps of hikes today on average with a cumulative 160bps of tightening ahead for 2022.
My gut feeling is that they will go 0.25% with economic forecasts likely to be very soft/cautious. Some talk of 0.5% hike today though so once again we have to wait and what's priced in. As ever we need to keep and eye on the voting too and we could see a three-way split (Cunliffe and Mann likely dissenting candidates) and we could hear more on a gilt sales plan given the 1.00% threshold will have been met. Local elections in England today should provide some protest voting.
Gold and oil have found some more dip demand amid the general happy-clappy feelgood vibes from the cautious/dovish FOMC tones with equities also rallying. OPEC meet later today but no changes expected.
For new and older subscribers alike I repeat my view that it's still a case of not over-analysing but keeping your focus on price action in core and cross-pairs.Continue to identify ranges and what levels present value for money. Algos will continue to knee-jerk price action on the variable headlines. Discipline is key as ever.
GBPUSD: A decent rally post-FOMC and I took advantage to re-sell between 1.2600-50 per my tweet last night and pips banked along the way into 1.2550 per my tweet this morning while keeping some core shorts. I remain a rally seller overall while keeping an eye on EURGBP and GBPJPY as always. I don't think BOE should/can be too hawkish but may feel obliged to do something and yet spring a surprise.EURGBP: A break of 0.8430 yesterday but sellers in again at 0.8460 as GBPUSD rallied strongly post-FOMC but 0.8400 holding the retreat as the two-way business continues. Expecting dip demand still but equally rally sellers poised as the uncertainty continues. Some potential options impact over next 30 hours. GBPJPY: Support at 162.00-30 overall still keeping the pair underpinned after failing above 163.20 again. A coin flip still here but should see some further dip demand overall for the moment. BOE casting its shadow too of course.
EURUSD: A strong rally post-FOMC but capping at 1.0642 but holding 1.0580 in the retreat so far with some general EUR dip demand still notable on the crosses. USDJPY: Sharp retreat post-FOMC into 128.60 but a decent rally since as dip demand continues and general USD buying brings a look at 129.80. EURJPY: Support at 136.50 still as the Euro finds general dip demand as does USDJPY but 137.50 cap being tested again as I type. USDCHF: A dip into 0.9700-20 again yesterday after FOMC but support prevailing again per recent trend and now testing 0.9800 once more amid generally firmer USD tones and with EURCHF finding some dip demand with the SNB never far away. EURCHF: A good hold of 1.0300-20 this time with the SNB lurking in the dips but more rally sellers poised into 1.0380-00
AUDUSD: A quick rush up from 0.7150 post-FOMC but once again finding offers, this time at 0.7250 and now down to 0.7200 again. Some option interest today/tomorrow. NZDUSD still holding 0.6420 in the latest retreats yesterday butcapping abov5 0.6550 in the post-FOMC rally.
USDCAD: Capping around 1.2850 yesterday as oil firms and CADJPY demand on the better risk tones. Softer dollar post-FOMC saw a test of 1.2725. Two-way business still expected amid all the fickle market tones.Some option interest today/tomorrow
Let's continue to be careful out there in all things. Staying safe must be our main priority still.
Interbank rates: 08.45 BST