Two years ago, the Fed cut rates to zero as an emergency measure to deal with the global pandemic. Two years later, we have take-off.
But what does this mean for the economic outlook? Not much in fact, especially since the Fed is now fully focused on inflation. We could be sleepwalking towards economic disaster, but the markets will only pay attention to it once it is necessary.
For now, the general mood seems to lean towards the disappearance of the Russian-Ukrainian risks and the establishment of a new trend to work with. I would say the latter is difficult to sort out as there is no clear view of the markets at the moment – in addition to the fact that inflation will be stickier.
USD/JPY looks promising as it holds above the December 2016 high at 118.66, but we’ll see if that can hold until the weekly close. But I have favored the Aussie and Kiwi over the Yen and they continue to outperform even regardless of market conditions over the past few weeks. AUD/JPY looks to have a clean break to 2017-18 highs above 89.00 while NZD/JPY looks to revisit 82.00 next.
I like the Aussie more and more due to traders underestimating a possible change in RBA rhetoric. If so, policy divergence against the Yen will surely fuel a fresh run in AUD/JPY.
On top of that, I will be looking for long opportunities in oil once the fog clears a bit more. This is one of the simplest structural views of the market given the scarcity of inventory, barring any demand destruction.
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