It is risk-off time in the markets, and that sentiment is not going anywhere any time soon. Short term bullishness on speculative plays have not been able to maintain and dip buyers are feeling the frustration. Here is why the dollar, franc and yen are buys right now and will be for some time.
Policy makers and political authorities may tell you otherwise, but we are already in a global recession. Stocks are sinking, businesses are letting go of employees, consumers are spending substantially less, and stagflation is very present. Monetary leaders are taking measures, and we are well aware, but this doesn't mean we will see relief in the short run.
What we would need to see before traders and go back to risk-on is an improvement in economies around the world with a receding inflation rate. Otherwise, there will be no strength in the markets, and every bounce in speculative currencies will only serve as short setups.
Secondly, Global inflation is taking its toll. Each month continues to ride higher even as interest rates rise. In a period of stagflation, economies kind of enter a state of limbo where nothing seems to be improving for the time being.
The 'soft landing' expectation raised some eyebrows early on and now seems to be unattainable now that inflation is as high as it is. Investors expect to see a rocky landing, the only question is how rocky.
Consumer Spending Falls
Additionally, as prices rise, spending falls. Consumers are forced to spend less due to the rapidly increasing rise in goods and services excluding food and energy. This suggests that people lack the confidence in the economy and are not spending it on vacations or activities of leisure.
More money in the pillow case and less in the market means nothing good for things like stocks or risk-on currencies.
GU is higher during the NY session after price has retraced considerably from the highs. Price is now under support in the 1.21500s but is showing upward pressure from the recent hammer candle on the 4H timeframe. If sentiment remains weak along with economic growth, the pair may test the lows around the 1.19300s.
Next, Australia's buck has been very weak against the franc, and this recent bounce gives an opportunity to the short side. A key level of support lies about 70 pips below on the 1D around 0.65123. Price just hit resistance and is retracing from that level, and depending on today's close, it may come down further.
Finally, euro-yen shows some bullishness today. However, recent price action suggests that the pair has topped out and struggles to move higher than the 144s. Price hit some clean support on the 4H timeframe and rose back above a supportive trend line. A potential short setup lies at 142.500 should price move that high.
On Friday this past week, the United Kingdom’s Office for National Statistics released the latest reports on the UK’s Gross Domestic Product (GDP), a means of measuring economic output. It was revealed that their economy grew by -0.6% month-over-month, and -0.1% quarter-over-quarter, which entails a contraction for both timeframes. Although these numbers are less disastrous […]
This week the public received startling news: on Wednesday morning, month-over-month CPI (a proxy for inflation) in the United States had unexpectedly remained static, clocking in at 0% whereas a moderate 0.2% increase had been forecast. Core CPI (which excludes food and energy prices) likewise came in lower than anticipated at 0.3% month-over-month, while Thursday […]
Next Tuesday, the RBNZ will announce their new official bank rate which is expected to be 3%, a 0.50% rise from July. This hike will make it the highest yielding major currency on the market. Here is why you should consider buying the kiwi before Tuesday's decision as well as some strong NZD long setups. […]
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