Focus on Euro/US Dollar Today with Bias to Sell Rallies

02/27/2018 12:23 pm EST

Focus: CURRENCIES

Robert Savage

Partner & CEO, CCTrack Solutions

Whether it’s growth or inflation or policy that matters most remains the key for trading markets with the EUR/USD relationship clearly the focus amid large 1.2350 option strikes rolling off today. Bias remains to sell rallies, writes Bob Savage, CEO of Track Research.

The world remains in the control of central bankers and politicians rather than consumers and corporations. Markets reflect this with the headlines overnight driving on policy prescriptions – with the key take-away being that technocrats like to deliver “more” money not “less” but when they shift watch out.

Ahead of the Jerome Powell testimony, there were some key news items to consider.

First is the ECB Jens Weidmann speech as a compare and contrast to Draghi Monday. The Bundesbank head is a shifter of policy – as he notes the role of forex and the level of the EUR doesn’t change his view that rate policy too accommodative.

Draghi, in contrast, had to say there wasn’t a currency war but a forex focus.

Second, China PBOC is expected to track the FOMC rate hike in March according to the China Securities Journal – with a 5bps increase in open market rates as it did in December.

Third, the Bank of Korea left rates at 1.5% as expected despite better growth.

Fourth, the Greek economy minister and an alternative minister for social solidarity resign due to the expenses scandal. This along with the Italian election reintroduce political risks to euro (EUR/USD).

Fifth, the Riksbank Jochnick comments and weaker economy tendency survey drive Swedish krona (SEK/EUR) to 8-year lows against EUR, 2Y lows against Norwegian krone (SEK/NOK).

As for the economic data overnight, Spanish CPI was higher, German in line, French confidence lower, Italian higher.

The ECB M3 and private loan data show a large increase in TLTRO lending – not a surprise – while the EU Commission Economic Sentiment drifts lower adding to flash PMI reports suggesting the growth rate in Europe is moderating from its 4Q mad dash.

Whether it's growth or inflation or policy that matters most remains the key for trading markets in the medium term with the EUR/USD relationship clearly the focus overnight amid large 1.2350 option strikes rolling off today. Bias remains to sell rallies.

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