Dollars are not surprised.
Does the federation pull the brakes? That is what the market is doing after the recent inflation. Six-and-a-half increments are now priced this year, the ‘double’ hike in March has passed, and there are all sorts of hypotheses about an emergency federation meeting this month.
They say the bond market is basically out of control and should take a hammer for inflation. However, while fireworks are in stock, the FX market could not play well together. The dollar eventually moved higher, but there was a slow response and it was not surprising, especially considering that the market had experienced an additional inflation in just a few hours.
There are many ways to interpret this reckless activity. For example, many big players may sit for a hot press or realize the sheer volume of shock and panic that can eventually lead to a reversal.
The reason is not so important. The main thing is price action. In the coming weeks, there will be a consistent pattern in which the Fed will not be able to capitalize on the ‘good’ news as the Fed trades. This shows that the growth that has been going on for more than a year is disappearing by steam.
Let’s divide it. The federation is now almost completely ‘sold out’. In fact, the markets may already be far away. There is a strong argument that with government spending declining, supply chains eventually becoming normalized, consumers lifting restrictions and returning to service, and year-on-year comparisons will be more severe than in March.
When investors see signs of ‘high inflation’ expectations, these high-stakes Fed bets may backfire. Politics is not comfortable either. Democrats will lose Congress in the midterm elections in November, which means the days of excessive government spending are over. This indicates that ‘great growth’ may be behind us.
Last but not least, the federation is no longer playing alone. Foreign central banks, including the ECB, are in the throes of a recession, so interest rates may not be as big.
With markets expected to double in March, the dollar may be ‘one last bit’, but the overall rally seems to be on its way. It is very difficult to look up when the federation sells at a very high price.
Both the January Federation meeting and the minutes of retail sales will be released on Wednesday. Minutes may be out of date due to recent changes, so the focus is on retail sales. If the report is strong but does not re-capitalize on the dollar, it is another sign that the picture is changing.
The rush of UK releases
A number of British leaks have been coming in since the latest report on Tuesday. January’s inflation will be on Wednesday ahead of retail sales on Friday.
The Bank of England (RB) began raising rates last week, but the pound failed to recover and instead the ECB overturned the Hawkish converter and lost ground against the euro. Currency markets are currently experiencing another six-month rise at the BoE.
In the euro area, Q4’s second GDP estimate is on Tuesday, although the euro as a whole has not responded much.
Canadian and Australian data
The final inflation report for Canada will be released on Wednesday before retail sales. Although retail sales may be relatively soft within December’s Covide limits, the country’s economy is booming.
The Canadian dollar has recently become a real mystery as economic data and the rise in oil prices, rather than trading in stock markets and endangering food demand. This means that the outlook is still good and that a broader inflationary environment would be good for exporters, such as Canada.
In Australia, the latest Reserve Bank meeting is scheduled for Thursday before the Employment Information. Although the RBA is unwilling to make any mark, both markets could be crucial for Australia as prices rise by more than six this year.
Inflation of Japan and China
Yen has been hit hard by recent shootings, and has lost board due to rising commodity prices. Increasing global production is bad news as the Bank of Japan remains committed to controlling its curve.
Therefore, Japanese products cannot keep pace with foreign products and the differences will automatically expand with Yen. In order for the money to come back, markets should look for signs that the BoJ could raise this ceiling. This will focus more on GDP and inflation next Tuesday and Friday.