7 Summary of The Traded Currency Except The War Issue, Plus The Bond Yield Post Processing Analysis

From the US, the biggest economy in the world is on the rise even though previously there were recession warnings due to the possibility of inverted yield curve. However, we could see that the FED key opinion leader repeatedly calls for interest rate hike and balance sheet reduction. In recent week, we heard that Fed’s Bullard calls for 1 percentage point in rate increases by July. supported by the Russia-Ukraine war issue, we could expect the direction of the USD currency could be bullish both from safe haven as currency reserve and economic perspective.

Although Euro area economic potential is threatened by the Russia-Ukraine war issue, in the previous week we could see that there were several positive sentiments from the economic perspective and the ease of covid restriction. Spanish exports top pre-pandemic levels despite Brexit and supply chain bottleneck and France unemployment hits 13-year low. Along with that, Portugal drops most COVID-19 rules as Omicron ebbs. We could see temporary strengthening for the euro currency before continuing the bearish direction.

The UK economy only suffered a small omicron hit. On the other side, the UK Jobs market shows employment improvement and UK inflation climbs to the highest since 1992 at 5.5%. These sentiments could be considered as positive for the GBP.

Australia was hit covid previously, but the sign of the normalization could be explicitly seen. Australia’s COVID-19 hospital admissions fall to lowest in weeks. In addition, after two years of closed borders, Australia welcomes the world back. Even though Australia would enter election year, we could see that the economic recovery and monetary policy tightening could boost the AUD higher.

Not too much news and information we could get from New Zealand at this time. New Zealand itself is still dealing with the anti-Covid vaccine mandate protest and its related negative sentiment. From our point of view, we could expect further NZD weakening after previous upside correction.

Canadian Dollar, where it is still highly correlated with the oil price expected to continue its weakening phase as the oil retraces from its previous high. Supported by several negative sentiment for oil such as OPEC would seek to bring Iran into oil supply deal, EU’s oil and petroleum consumption hit record low in 2020, and Oil heads for weekly fall on Iranian oil hopes, also the possibility if the Russia-Ukraine war issue got diminished, we might see CAD would move lower.

Swiss Franc, as a safe haven currency, and where the currency movement is considered unique due to very independent monetary policy, recently got several positive sentiments. The Swiss National Bank increases annual profit as stock markets boom, Swiss inflation hits 13-year high in January, and Swiss government lifts nearly all COVID-19 restrictions. From these considerations, we might see CHF strengthening in the following week.

Japan, the third largest economy in the world, also got some good sentiments beyond its existence as a safe haven currency during the Russia-Ukraine war issue. Japan’s PM Kishida implements border easing and also plans targeted COVID curbs as new cases fall but deaths hit record. From a sentiment point of view, we might see the JPY temporarily strengthen next week. However, we shall remember that BOJ stated that they will not exit their ultra easy monetary policy and committed to buy unlimited JGB in order to maintain the yield curve control program.

We could see that if traders only analyze from a qualitative sentiments point of view, it could be confusing and makes the judgment for trade execution become vary and very subjective. Therefore, we try to provide below additional leading indicators as data points reference for trade execution. The table provided below, shows the post processing of 10 Year Bond Yield Weekly normalized direction, Yield Curve Slope, and Yield Curve Slope Changes. In this opportunity we could give you a teaser that these below parameters could be analyzed based on their value and its color code. How to use it properly in order to increase our trading performance? Please kindly wait for our next article.

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Happy trading.

Global Kapital Indonesia

About Reza Aswin

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