Asia Sells US Dollar and Europe Buys It Back Ahead of Today's Data

02/14/2018 12:38 pm EST

Focus: CURRENCIES

Robert Savage

Partner & CEO, CCTrack Solutions

Today’s focus is about CPI. Many see 3% y/y as the turning point for FOMC doubts about gradual hikes – read by traders as pricing in 2-3 vs. 4-plus. The speed of change for rates sets the tone for change in equities and USD, writes Bob Savage, CEO of Track Research.

It’s Valentine’s Day and Ash Wednesday, a combination that brings chocolate and resolutions to give up something for Lent.

We, of course, could mix the two and give up both – and that maybe the course for the day – giving up on expecting anything big happening.

Markets are limping through a consolidation stage after the volatility of last week. For most in the markets, the risk-on mood hobbles into another day along with the U.S. dollar (USD/JPY) weakness – particularly in the Japanese yen.

As for the JPY – the risk-on and off story has shifted to the euro/Japanese yen (EUR/JPY) more than USD/JPY with an eye to the New Year holidays forcing a larger washout of order books.

Two central bank meetings had no change – Bank of Thailand on hold as expected, Sweden Riksbank on hold as expected – but there were fireworks around the deputy dissent with euro/Swedish krona (EUR/SEK) rallying to 55-day support briefly.

The GDP reports from Europe, Germany, Italy – were in line but Japan missed and adds to views there of ongoing QQE.

The first of many key Brexit speeches hits today with Boris Johnson vowing no EU laws in the UK post-2019. Talk of the VP jobs at the ECB and FOMC grabbed headlines with Spain’s De Guindos a favorite for the ECB and Cleveland Fed Loretta Mester a front-runner for the vice-chair of the FOMC. Both are seen as supporting status quo of gradualism for shifting rates – all of which translates into the present status quo story that equities are a buy-the-dip but with more volatility and less returns for 2018.

The trends down in the USD are seen as reflecting US deficits, inflation risks and trade policy doubts.

Today’s focus is about CPI – with many seeing 3% y/y as the turning point for FOMC doubts about gradual hikes – read by traders as pricing in 2-3 vs. 4 or more. The speed of change for rates sets the tone still for the speed of change in equities and the USD. The fact that Asia sold USD and Europe bought it back ahead of the data today matters – as we now have a range to watch for momentum breakouts or breakdowns.

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