View from London: Rate Move in Europe May Not Matter to Euro
10/13/2017 2:15 pm EST
The risk rewards for trading today maybe more in the friction of fact than fantasy as EUR cap at 1.1880 held and risk for 1.1795 breakdown seems high, writes Bob Savage, CEO of Track Research in Friday commentary from London.
In order for markets to move we need to reduce the friction or increase the force.
For many, the key worry remains rates and the friction is inflation with US CPI potentially taking over the mantel of jobs as the key to understanding FOMC rate hike risks.
Whether this plays out today and anything moves remains more a physics equation as cash is still high on the sidelines waiting for a shove from earnings to go to work.
The block of data last night wasn’t that exciting – China trade showed a big increase in imports – and the commodity sector was part of that – driving up the Australian dollar, oil and iron ore prices.
The New Zealand PMI was weaker but still well above normal and that helped drive down political doubts. The RBA Financial Stability Review was dovish enough – that that left rates in front end lower. The MAS was on hold again – as expected – but removed some forward guidance driving SGD stronger.
The other stories were about rumors more than facts but the friction of trying to figure out alternative news isn’t worth more force to many and so money continues to chase hope and greed more than fear and safety.
• GBP rallied on hopes for an EU 2Y transition deal - German newspaper Handelsblatt said Michel Barnier will seek support for the proposal at a meeting of EU ambassadors in Brussels today, but FT and other papers still doubt that outcome.
• JPY rallied with some doubts about Abe and the election. The approval rating for Prime Minister Abe’s Cabinet fell 4.7pp to 37.1%, according to a Jiji poll conducted Oct. 6-9; disapproval rating rose 5.1pp to 41.8%
• EUR flat but U bonds bid on ECB talk - ECB are said to consider at least a 9-month extension of QE at a rate of E30bn per month according to various reports. The standout today is in the rate move in Europe not mattering to the EUR. That could all change on the U.S. CPI report and retail sales.
The risk rewards for trading today maybe more in the friction of fact than fantasy as EUR cap at 1.1880 held and risk for 1.1795 breakdown seems high.