2023The chart you see is the EURUSD but this post isn't just about euro but it will be a key player coming into next yr.
It's been a year of CB's but where do we head next?
BOE raising rates 3.5%, with the split vote as we head into 2023 expect a large recession going forward as all CB's have raised rates they are hiking a little bit too much and yes they will have to cut as we head into the recession but hiking could actually be a mistake but we obviously don't control what CB's will do and CPI is declining 11.1% it dropped to 10.7% cost of petrol, tobacco etc Food prices are rising. It is a great amount 10% core inflation isn't excelling it's still at those areas. Raising rates, it takes time to come into transition. Now don't forget we've got strikes such as rail strikes, it isn't busy with retail sales aren't excelling people can't get into these stores and less people are spending.
FOMC: Raising rates 0.25% keep rates higher 2023 5.1% expectation of rate. Very hawkish, headline inflation 7.1% lowering CPI. These rate hikes are working. The market rallied S&P, it declined. Rate hikes are pacing themselves, we could even get cuts mid next year stop hiking rates, recession. It will take more evidence for inflation is on downward path, in reality it is declining. Perhaps its due to core inflation. The dot plot was the main move. It's 4.5%, they want 5.1%. No cuts in 2023, that's the questionable bit as well. Now market did rally before thinking there would be cut sooner 2023 well the dot plot differs in that view. 17 out 19 for 5.1% members. Last 3 months it has raised. That's interesting. Labour market jobs available and working 3.5 million it is very tight. When going into recession there's cost cutting, further reduction of employees = Recession. Job cuts are here tech sector, finance sector etc. Wages stay high, no demand disruption. May sustain high inflation. The need keeping rates higher for longer, extending the demand disruptions. Hiring was very difficult in first place, are workers going to extend the cut of workers? Time will tell.
ECB hiked as all CB's are. Anybody who thinks this is a pivot, is wrong. 50 basis point hikes pace for period of time EU indices fell. Very hawkish. They are lagging compared to other CB's, current rate 2.5%. Now bare in mind they do have to think of other countries but they are behind compared to others, the large bear move came. Quantitative tightening in May extends.
We had CPI's, we've had of this year CB's. Year ends all CB's hawkish. The markets SPX and other EUR indices rallying but it hasn't happened the Grinch came out, you can see in my previous posts I wasn't confident at all we could head higher especially SPX this can be seen through previous posts. I expect this to continue. Don't forget you got China think about as well reopening, it's interesting time there. Overall regarding the market, we already see housing having issues, there's another country that has my key interest it's Mexico, will manufacturing move further away from China and head a little to Mexico? USDMXN interesting FX pair I am going to keep an eye on for next year. Regarding market overall, I am bearish DXY for the next 6 months in my humble opinion . I feel shorter term, for sure a pull back but I think longer term: GBP we could hit back to 1.30/1.35 areas, EUR 1.15/1.20, XAG 30-35, keep an eye on other euro minor pairs could extend further a lot more in gains than others and yes I will even mention crypto 8-10k Bitcoin seems a good support area! If we technically stay above those areas, could be a good time to buy but that market overall has a lot of reinforcement to make regarding the regulations. The market doesn't go in straight line that's where technicals come in. Last year I expected we get higher DXY - we achieved that but this time I'm on the flip side...embrace yourself for recession.
Happy Holidays & Get ready to smash 2023.
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