This week saw the US raise interest rates by the biggest amount in nearly 30 years. All this of course in an effort to fight soaring inflation and consumer prices….and more hikes are expected. What does this mean for the average man in the street?…higher borrowing costs for mortgages, credit cards, on and any other loan. Most countries have started taking similar measures, including Brazil, Canada, and Australia and even the Eurozone plans its first interest rate rise in 11 years later this year.
What did Powell say
FED Chair Jerome Powell also made it clear during last Wednesday’s press conference that the central bank’s actions are not intended to tip the economy into a recession. “We’re not trying to induce a recession now. Let’s be clear about that,” he said….
“We’re trying to achieve 2% inflation with a strong labor market — that’s what we’re trying to do,”
I now personally believe we could start moving into a stagflation scenario by the end of the year.
So, what is stagflation?
Stagflation is characterized by slow economic growth and relatively high unemployment which is at the same time accompanied by rising prices (i.e., inflation), which is then accompanied by declining demand for goods and services.
In history, the most recent example of stagflation comes from the USA in the 1970’s where the onset of stagflation in the 1970s was blamed on the US Federal Reserve’s unsustainable economic policy during the boom years of the late 1950s and 1960s…sound familiar?
What potential steps or actions can we expect to fight stagflation;
-Monetary policy is generally used to try to reduce inflation by using higher interest rates or increasing economic growth.
-Reduce an economy’s dependency on oil. Rising oil prices are the major cause of stagflation. (we are starting to see plans around this in Europe already)
-Increase the country’s productivity.
The Forex News Week Ahead
No BIG news events this week, but watch out for GBP, CAD & German (Euro) inflation news. The equation is pretty simple, if inflation is not kept under control, or keeps rising, expect interest rates to keep being increased…
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EUR/USD: Still only want too short. A grade for me is the 1.11100 area. On the smaller timeframes look for the 1.0740 zone.
USD/CHF: Only want to long. Looking at the 0.94800 area. 0.96400 looks interesting on the 4H
GBP/USD: I only want to short. A grade short from 1.31200. On smaller timeframes have a look at 1.2600
AUD/USD: Looking to short at the 0.7250 area.
NZD/USD: Looking to short from 0.6720 as an A grade. On the smaller timeframe look for 0.6500
USD/JPY: Complete mismatch fundamentally n nowhere near anything. 120.000 to long on the daily and 128.300 on the smaller timeframes.
USD/CAD: Perfect M2 setup this week -same idea again, if it gets back to 1.2850 I’d look to long.
EUR/GBP: Tried to break out of the big 0.8600 area but broke straight back in. I’m going to go back to trading the 0.8500 – 08600 range.
GBP/AUD: A grade short from 1.8060. On the smaller timeframe have a look at 1.7650
NZD/CHF: I’m watching the 0.62800 area for a short.
EUR/NZD: Looking at the weekly, I’d look to short again at 1.67900
AUD/NZD: On the weekly, I’d look to long at 1.0800
EUR/CAD: Looking to short. A grade though back at 1.40700. On the 4H a countertrend long from the current position looks really interesting. See video.
GBP/NZD: I’m looking to trade this on the 4H chart. Short from 1.94800 as well as the current position. See video.
YENS: Still too far away from anything in order to trade with the trend.
As always, remember correlation!
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Watch the video below for more detailed explanations of this week’s analysis and trade plan (click the 4 arrows bottom right to view full-screen: