Russell Shor

In this week's podcast, FXCM senior market specialists, Russ and Nik, discuss the aggressive hike by the RBNZ despite other banks signalling a slowdown in pace. In addition, the two also talk about oil demand out of China and give their opinion on the Fed's minutes. In addition, this Thursday will see the preferred measure of inflation - core PCE - released, and Friday is NFP Friday. Listen to these…

The hourly chart on the right has developed bullishly. In addition, the trend following EMAs have crossed bullishly, as has the momentum-based stochastic (black ellipses). If the stochastic makes its way to the 80+ region and holds, bullish momentum will be underlying. This, in turn, will align the short-term traders with the daily positions.

The USDOLLAR gapped on the open as protests out of China weighed on sentiment. There is a risk of escalation and crackdown. However, the broader market pattern is still suggestive of a weaker dollar.

If the real rates start reflecting dovishness or a softer terminal rate, and given the inverse cc, the FXCM FAANG basket may be a beneficiary. This is because the FAANGs are sensitive to interest rate changes. As such, we continue to monitor.

Since the week starting Monday, 17 October (black dashed vertical), the US 10-year real rate has been drifting lower (blue arrow top chart). An appreciation in the EURUSD (red arrow bottom chart) accompanies this.

The Fed and BoE both hike by 75 bps but their tonality contrast with each other. RBA shows conservativeness, with central bank signs of slowing down in some regions. NFP leads to an odd market reaction and critical inflation data this Thursday. Into this mix, we also have the US mid-terms. All this and more.

The USDOLLAR (bottom candlestick chart) pullback that started on Friday seems disconnected from the underlying fundamentals. On Friday, the real rate (top candlestick chart) charted an indecisive doji, whilst the greenback declined markedly. Moreover, the dollar has shown weakness in today's morning session, with minimal movement from the real rate. Over the two sessions, their correlation coefficient declined from 69% to 52%.

NFP Live Trade - 04 November 2022

Tech earnings have disappointed over the Q3 earnings seasons, and with the prospect of higher rates, the present value of the NAS100 will likely come under further pressure. As a result, the NAS100 has fallen back into its bearish area between the lower blue and red bands. The longer it stays in this channel, the greater the probability of lower index prices ahead.

A policy rate above neutral is, in effect, a contractionary monetary policy. Given that the Fed may only have just hit neutral, the Fed's hawkishness is understandable. Chair Powell admitted as such, saying that "the level of interest rates will...be higher than previously expected."

There is optimism that China will reopen from their strict Covid policy. Given that it is the 2nd largest energy consumer, this will be significant. An unverified note on social media suggested that a "Reopening Committee" had been formed. With the OPEC+ cuts, this may catalyse further price appreciation and a higher peak.