This week saw a huge move out of the Yen on a yield rate-inspired move. Soaring inflation, supply chain issues, and rising energy prices are all pushing global bond yields higher. Why? This is because investors are expecting central banks to hike interest rates early in order to try and control inflation. All banks, that is, apart from the Bank of Japan. This has led to large outflows from the JPY and some are asking, ‘is the JPY carry trade back?’ If it is, then many traders will expect dip buyers on the JPY crosses in the coming week. That means there may be possible dip buyers ahead on GBPJPY, NZDJPY, CADJPY and USDJPY.
Other key events from the past week
GBP: Rate hikes expected, Oct 11: The Bank of England is expected to hike interest rates more quickly after Governor Bailey expressed concerns over rising inflation. Will we now see GBPJPY dip buyers into the next meeting?
EUR: German disappointment, Oct 11: The latest German ZEW data showed that German businesses are still gloomy over supply chain issues and a global energy price surge. No signs of relief for the eurozone are seen yet.
US oil: Set for $90 this month? Oct 12: Oil continued its move higher this week as falling inventory levels, rising demand expectations, and clever OPEC handling all support prices. Key support for buyers sits at $77.
Key events for the coming week
NZD: Inflation fears? Oct 17: If inflation shows a surge higher in New Zealand next week, that will increase expectations of sooner RBNZ rate hikes. Expect global inflation readings to be a major market focus for the next few weeks.
Seasonal trades: FTSE 100, Oct 16: The Dollar Index has risen 9 times in the last ten years between October 18 and 31. Be aware that if we see a stagflationary environment, that typically supports the USD. Check out the strong seasonal pattern here.
GBP: Inflation risk, Oct 20: The Bank of England have already communicated their fear to the markets about rising inflation. A sharp move higher in CPI next week and then markets will wonder if the BoE will hike at their next meeting.
High Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.