What to Watch for this Week?
The big question at the moment is: was last weeks Equity meltdown a one off short term correction OR is it the start of something much bigger?
I’m going with the latter, or hoping at the very least, because a major equity meltdown provides us with very clear direction on the currencies.
In simple terms, if the US equity indices rally it’s “Risk On” (Sell USD), if they fall it’s “Risk Off” (Buy USD).
But there’s even easier trades such as the “flight to safety” where traders Buy YEN & CHF when there is widespread chaos & sell them when things calm down.
All in all it’s a good thing because we know what’s driving the market!
So the key to trading this week will be patiently waiting to see what the equity markets do Monday/Tuesday.
They closed last week on a positive note and that may have been enough to calm the panic down. But we just have to wait and see.
US Treasuries Still Rallying
For me though it’s far from over as US 10 Year Treasury Bonds are back up at 2.8566 and not far off the high of 2.8850 which started the whole panic situation on the equity markets. So the problem hasn’t gone away by any stretch of the imagination.
Treasury Yield Basics – When Treasury yield increases, interest rates in the economy also increase since the government must pay higher interest rates to attract more buyers in future auctions.
Also the higher the yields on 10-, 20- and 30-year Treasuries, the better the economic outlook.
US & UK CPI data the major focus
Inflation is one of the most important data releases for the central banks so this weeks US & Uk CPI data will be watched very closely.
GBP – Last week the markets moved to price a 70% chance of a rate hike in May, up from 50% the week before. BOE Gov Carney has said on a number of occasions they are focused on controlling inflation & that they may need to raise rates sooner.
USA – The FED are on a rate hiking path. Strong CPI data will definitely put upward pressure on US Treasuries and panic the US equity market….. so the timing for this release couldn’t be better.
All eyes are on the equity markets so prepare for the opportunities ahead of the releases.
This Weeks Key Fundamental Drivers
UK Consumer Price Index
Forecast: M/M -0.6%, Y/Y 2.9%
Euro Zone Gross Domestic Product
Forecast: Q/Q 0.6%, Y/Y 2.7%
US Consumer Price Index
Forecast: M/M 0.3%, Y/Y 1.9%
AUST Employment Change & Unemployment Rate
Forecast: Change +15.0K, Unemployment Rate 5.5%
Technical Set Up – What’s Happening with the Majors
Plan the Trade, Trade the Plan!
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