Two years ago, the Fed brought rates to zero in an emergency move to deal with the global pandemic. Two years later, we have liftoff.
But what does it mean for the economic outlook? Not much actually, especially since the Fed focus now is all on inflation. We could be sleepwalking into an economic disaster but markets will only look to that once there is a need to.
For now, the overall mood seems to be leaning towards fading Russia-Ukraine risks and establishing a fresh trend to work with. I'd say the latter is hard to sort out as there isn't a clear cut view across markets at the moment - besides the fact that inflation will be more sticky.
USD/JPY looks promising as it holds above the December 2016 high of 118.66 but we'll see if that can hold through to the weekly close. But I have been favouring the aussie and kiwi against the yen and they continue to outperform even irrespective of market conditions over the past few weeks. AUD/JPY looks to have a clear break towards the 2017-18 highs above 89.00 while NZD/JPY looks to revisit 82.00 next.
I'm liking the aussie more and more because of the fact that traders are underappreciating a possible shift in the RBA rhetoric. If so, policy divergence against the yen will fuel a further run in AUD/JPY surely.
Besides that, I'll be looking for long opportunities in oil once the fog clears out a bit more. That's one of the more straightforward structural views in the market considering how tight inventories are, barring any demand destruction that is.
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