The Real Fundamental Analysis

[BeSomebodyFX]

So, the key event this week for the NZDCAD trade is the BoC rate decision on Wednesday.

@BeSomebodyFX

So the BoC will start cutting rates in June, and the RBNZ is not even close to that.

There is a strong case for the BoC to cut rates already.

Why?

Ok.

You are a central bank.

Your inflation target is a band between 1% and 3%.

So the closer inflation is to 2% the better but you don’t necessarily need to wait for inflation to be exactly at 2% to start cutting.

You care most about the projected direction.

With that in mind…

The latest inflation readings in your country show a 2.7% read, down from 3.1% previous.

Not too bad.

It’s some progress there, and it’s already within your official targeted band which is between 1% and 3%.

Looks like in a couple more prints it could be at that 2% target already.

Cool.

At the same time, the overall economy is slowing down MUCH faster than you expect.

And I mean, quite a bit faster…

You expect GDP at 2.8% and it prints 1.7%?

Seriously, there might have been some miscalculations there.

The economy is slowing A LOT faster.

Inflation is being dragged down.

And all that looks set to continue.

Now…

You meet to decide if you can cut rates already or not.

What do you do?

You cut.

A small 25bps cut.

But you cut.

And that’s what the BoC should do on Wednesday.

And that creates creates a policy divergence between the BoC and a few other central banks that are instead NOT looking to cut rates anytime soon.

@BeSomebodyFX

So the BoC will start cutting rates in June, and the RBNZ is not even close to that.

Small policy divergence there that should keep NZDCAD in an overall uptrend.

Yes, the RBNZ is one of them.

[BeSomebodyFX]

Alright guys, BoC rate decision today.

Keep in mind…

A rate cut has now been almost fully front run with the CAD weakness we have seen since the start of the week.

So we shouldn’t expect much from the actual announcement.

Could be good enough for 20 to 30 pips of more upside on NZDCAD but after that it can get tricky.

So…

Trailed the stop loss well in profit and also ready to take profit right after the BoC.

[BeSomebodyFX]

Trade done.

@BeSomebodyFX

2024-05-22_09h02_521918×1036 48.6 KB

25bps cut from the BoC.

@BeSomebodyFX

ready to take profit right after the BoC

And so now taking profit on the NZDCAD longs.

[BeSomebodyFX]

Long NZDCAD again.

Really soft CPI from the US, and…

That feeds into expectations for more disinflation in Canada too.

So?

So the monetary policy divergence sentiment between New Zealand and Canada lights up again.

You know…

RBNZ not looking to cut anytime soon while instead BoC already started cutting rates?

@BeSomebodyFX

Small policy divergence there that should keep NZDCAD in an overall uptrend.

That one.

With the context set, here’s the technical chart…

Alright.

Target 0.8630.

[BeSomebodyFX]

Stopped out on NZDCAD.

Wrong entry timing.

Caught in the fakeout of the highs.

[BeSomebodyFX]

Alright guys.

First US presidential debate tonight.

So it’s time for an indepth brief on it.

Ok.

First of all…

There’s one core element that decides how markets will behave towards the Election.

What’s that’?

Tariffs.

Yes.

Trump is there ready to pull the tariff lever against China, Mexico, and to some extent Europe too.

@BeSomebodyFX

Does that really matter for markets?

Oh, of course.

Here’s USDCNH and EURUSD right after Trump got into office in 2016.

And here’s instead the same two after Biden got into office in 2020.

See what’s going on there?

That’s based on foreign trade policies.

Trump is A LOT more aggressive, Biden is a lot easier.

And that will make the whole difference in how the market will move towards the Election.

But on hold a second…

The US election is like 6 months away?

True.

But markets move on expectations…

And so tonight’s debate could already start pricing in some scenarios well ahead of the election.

So…

What scenarios exactly?

Goldmans recently came out with a very handy table showing the overall expected impact of the various scenarios.

Here:

Above you can see a table that shows the “baseline” potential scenarios from the election.

You can see the impact is pretty straightforward…

Both in a Republican sweep and in a Trump win with a divided government it’s the immediate impact will be large appreciation in the US Dollar across the board.

With pretty much no exceptions.

While Biden with a divided government or a whole Democratic sweep would be much quiter and to a degree also negative for the Dollar.

That’s all you need to know.

I went into a bit more details on this post here.

So that’s a good read if you want more details.

But put simply…

Whichever comes out ahead of that debate will decide how the market moves.

Trump bullish USD.

Biden bearish USD.

That’s the story.

[BeSomebodyFX]

Long S&P500.

Not a lot to mention on this other than just overall macro context supportive for risk assets, and…

Seasonals turning VERY bullish from today up to late July.

Here’s the full seasonal chart:

And here’s the indepth seasonal analysis year by year:

Notice the consistency.

Every year from June 27 to July 24 the S&P500 is on average around 4% higher.

Which would put the S&P500 above 5700, so…

Target 5700.

In simple…

Seasonals, fundamentals, and technicals are pointing to one thing.

S&P500 to 5700 by mid July, not much else to add to that.

[pipsmaster10]

Your selfless contributions to the community are truly appreciated. Your dedication is a blessing to us all

[BeSomebodyFX]

@pipsmaster10

Your selfless contributions to the community are truly appreciated.

Thank you for sharing that…

Honestly there’s hasn’t been much engagement here, at least not as much as I thought.

The conversations would be MUCH more useful and educational if readers engage more by asking questions or adding their thoughts.

But either way…

I know there are plenty of silent readers who don’t engage but still find value in the content here.

So I’m happy to keep posting

Thank you.

[BeSomebodyFX]

@BeSomebodyFX

S&P500 to 5700 by mid July, not much else to add to that.

Still there on the S&P500.

With this chop so far looks like it could take a little longer than anticipated to reach that 5700.

But either way…

Still long and bullish.

Also beware of a potential fakeout below the lows marked with the yellow line.

You can see from the chart above there have been already a couple of instances where price took out the lows of the range right below resuming higher thereafter.

[BeSomebodyFX]

Quick technical update.

Stop loss on the trade is already at breakeven.

But other than that, nothing changed.

Still looking for that 5700 by late July.

More details on the original post:

@BeSomebodyFX

Seasonals turning VERY bullish from today up to late July.

@BeSomebodyFX

In simple…

Seasonals, fundamentals, and technicals are pointing to one thing.

S&P500 to 5700 by mid July, not much else to add to that.

Other than that…

NFP on Friday.

[BeSomebodyFX]

Starting to trail stop loss up in profit on the S&P500.

Obviously still targeting that full 5700 but the CPI from the US on Thursday will be a mover.

Will share more details over the coming days.

[BeSomebodyFX]

Remember…

US CPI tomorrow.

If the CPI is above consensus that will be more than enough to trigger a decent pullback on the S&P500.

While if instead it’s below consensus then that 5700 will be reached much earlier than anticipated.

Here’s what most models are pointing to:

And here’s the various scenarios based on the core reading:

I’ve highlighted the two most likely scenarios.

Either way…

Longs on the S&P500 for us are already protected with the stops trailed up well in profit.

[BeSomebodyFX]

@BeSomebodyFX

Long S&P500.

Alright.

Trailed out in profit on the S&P500 longs on this pullback.

Still expecting 5700 to be reached to be honest, but…

We might get a bit of a corrective structure now to build up fuel for the next leg higher.

Will update.

[BeSomebodyFX]

Ok, long GBPUSD on a dip.

UK inflation this morning proves still a bit too high for the BoE.

Particularlu services inflation which is at 5.7% while the BoE’s target is at 5.1%.

While instead the story is the opposite in the US with plenty of disinflation going.

So the overall context is well set for GBP outperformance and USD underperformance.

Target 1.3130.

[BeSomebodyFX]

Side note…

It’s nothing particularly actionable right now, but well worth a mention.

Basically, Trump overnight did an interview with Bloomberg…

And from that we can say for the first time in a while JPY carry trades are in danger, why?

Because Trump loudly talked about how the Dollar is too expensive against the Yen.

In other words…

Short JPYs are now being threatened from multiple sides.

The FED will start cutting rates in September, and that will shrink the carry advantage that the Dollar has against the Yen.

Then the BoJ is actively intervening every time the JPY gets too weak too quick.

And now there’s Trump saying the Yen is too cheap and he will want to turn that around when he’s president.

Well…

This may or may not be the absolute turning point for the JPY.

Probably it’s not, yet.

But certainly JPY shorts are not the attractive carry trade that they were before this interview.

Just a bit of context.

Nothing actionable for me.

But this is just to give you a bit of context into the JPY strength over the past 12 hours or so.

[BeSomebodyFX]

Stopped on the GBPUSD longs for now.

Squeezed by the risk off hitting across equities.

Which led to a turn in sentiment across FX pairs too.

Keeping an eye out for a reentry as 1.31 is still likely to be reached sooner or later.

But no rush with it, letting this pullback play out fully first.

[BeSomebodyFX]

@BeSomebodyFX

Squeezed by the risk off hitting across equities.

Also, what triggered this?

Rumors have it that Biden is about to drop out of the presidential race.

So Trump will (most likely) have to face someone else in November.

And that’s rebalancing the polls and the election scenarios.

How?

Think about it this way…

Trump extending his lead after the June 27 presidential debate was one of the multiple reasons for the bullishness in US equities over the past couple of weeks.

And so with the latest developments that’s unwinding now.

Just a bit of context.

[peterma]

@BeSomebodyFX

Also, what triggered this?

A number of reasons - Pres Trump’s remarks re Taiwan likely the spark.

One headline I read summed it up:

Textbook on How to Spook Investors

[BeSomebodyFX]

Hey Peter,

@peterma

Pres Trump’s remarks re Taiwan likely the spark.

Thank you for your thought and that’s true.

But that was from Trump’s interview on Wednesday.

This:

@BeSomebodyFX

Basically, Trump overnight did an interview with Bloomberg…

That started the move but it was isolated to equities alone an fairly small.

After that on Thursday this was the trigger that escalated things:

@BeSomebodyFX

Rumors have it that Biden is about to drop out of the presidential race.

From there if you notice we have had lower stocks along lower GOLD.

That’s a sign that it’s not classic risk off type from geopolitical concerns, growth concerns, and such.

But it’s the market “pricing out” a Trump victory, meaning…

@BeSomebodyFX

And that’s rebalancing the polls and the election scenarios.

How?

Think about it this way…

Trump extending his lead after the June 27 presidential debate was one of the multiple reasons for the bullishness in US equities over the past couple of weeks.

So…

@BeSomebodyFX

And so with the latest developments that’s unwinding now.

Reason being that Biden has no chance to win against Trump, at least for what markets think obviously.

So a new opponent (most likely younger, more competent, and more charismatic than Biden) changes the whole scenario now for the election, not too easy anymore for Trump.

So the market is adjusting.