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  • Mike Paterson

Central banks in rate hike mode

Thursday 16 June 2022

A busy and volatile few hours since the US Federal Reserve duly hiked rates by 0.75% last night which initially brought a muted response from markets but ultimately some good two-way second-guessing moves in FX and equities. Now the SNB have surprised traders with a 0.5% rate hike for the first time since 2007 at their quarterly meeting earlier this morning which has seen CHF demand in a rush. Market expectations were for a change of rhetoric and a hike next time but I've been pointing out here the recent change of stance and warned again in a tweet last night that we could yet see them throw a curve ball which they've duly delivered.

Next up are the BOE today at 12.00 BST and expectations are for at least 0.25% hike but now some money on 0.5% given the knee-jerks (albeit belated) elsewhere in what might be a concerted/joint move. Recent soggy UK GDP and services data though will keep the MPC cautious. Equally a dovish/cautious BOE will see the Pound under attack and therefore bringing more inflation to the table. Tomorrow sees the BOJ who are quite capable of throwing more fuel onto the fire. Interesting times indeed.

As ever, deal on fact not second-guessing. Be ready with your preferred levels/strategy, place orders and let the algos do the heavy work. Discipline is key as always but equally hesitation can often ruin a great idea.

GBPUSD: Some decent two-way business between 1.2000-1.2200. I remain poised to sell rallies but timing as ever is crucial. BOE meeting today will be interesting in the wake of US Fed and SNB poer my thoughts above.EURGBP: Holding 0.8565 in the extended retreat but capping around 0.8620 since as traders second-guess the BOE.GBPJPY: Capping at 164.00 in the bounce from 162.00 this time amid but a straight line lower again to 161.50 as I type as the risk-off JPY demand and GBP supply double-whammy play out. I've said before that this pair is heavily traded by hedge-funds as a risk management tool and we've certainly seen some unwinding finally this week.BOE and BOJ both in focus too.

EURUSD: 1.0400 support broke post-FOMC and since capping around 1.0450-60 amid some general USD demand elsewhere. not to mention EURCHF collapsing post-SNB and sellers still poised. I remain a rally seller as my preferred side.

USDJPY: 133.40.50 support breaking as I type amid the general rate hike speculation and softer risk-tones and looking at 132.75 now. Momentum for is finally increasing but the real reversal when it comes will be even more rapid but some dip demand still expected for the moment.All eyes on BOJ tomorrow. EURJPY: Finding a cap at 140.00 amid the general EUR supply/JPY demand double whammy and tumbling to 138.00 as I type.Sellers still poised on softer risk sentiment as/when it returns each time as I warned again yesterday.USDCHF: SNB dropped the 0.5% hike surprise earlier this morning and markets have been chasing shadows since. They obviously felt the pressure given they didn't want to wait to the next meeting in September. Will they continue to smooth/intervene as much as they have done? I think we've already seen in recent times that they prefer a stronger CHF as an anti-inflation tool but they will be watching FX moves for sure. EURCHF: That cap around 1.0500 was certainly telling and now a collapse to 1.0165 post-SNB. For intervention stance read above para but its possible they may have switched focus to USD rather than EUR.

AUDUSD: Finding a cap around 0.7035 this time after the 0.6900-20 hold post-FOMC with AUDJPY supply notable again this morning. GBPAUD capping around 1.7450 but now 1.7412 again after testing 1.7300. NZDUSD finding a good hold of 0.6230 this time but capping at 0.6300 amid the latest risk-off NZDJPY supply. GBPNZD finding support at 1.9300 this time.USDCAD: Supported at 1.2860 now and rallying back through 1.2930 helped by CADJPY supply amid softer risk and oil price capping again.

Let's continue to be careful out there.

Interbank rates: 09.55 BST

GBPUSD 1.2180

EURUSD 1.0390

EURGBP 0.8550

GBPEUR 1.1695

GBPJPY 161.51

GBPCAD 1.5733

GBPCHF 1.1940

GBPZAR 19.4240

GBPHKD 9.4882

USDJPY 133.11

EURJPY 138.85

EURCHF 1.0196

EURHKD 8.1563

AUDUSD 0.6978

USDCAD 1.2923

USDCHF 0.9814

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