Forex players return to euro/Japanese yen and the base from the 200-week at 129.50 looking key with hopes for 131.80 and 133.05 Feb. 21 highs to return, writes Bob Savage, CEO of Track Research Friday.
Forget the fluff about at Trump-Kim summit or the Trump tariffs on steel, or the EU freezing Brext talks – we all know that geopolitics don’t matter.
Today is about inflation. Yes, of course, it’s also U.S. non-farm payroll day and we all know that number holds special volatility power over markets, but the average hourly earnings in the rest of the U.S. jobs report is quickly catching up in its importance.
Wage inflation means FOMC doing four hikes for sure and risks more into 2019. Wages up mean the theory that the FOMC stops at 2.75% (the market’s estimate of the terminal rate) is wrong.
As for the overnight, inflation was the key release with China seeing a sharply higher food inflation bleeding into its CPI but not the PPI. This was mostly ignored, with the Chinese yuan (CNY/USD) flat on the week, rates lower there despite PBOC draining liquidity.
The Norwegians saw inflation at 2.2% - far worse than the 1.8% expected – and the Norwegian krone (NOK/USD) rallies sharply and a Norges Bank September hike is priced.
The different reactions matter and highlight the problem for all traders – inflation is trouble for markets in some places but not all.
BOJ would welcome it and decided to leave rate policy extraordinary even as Kuroda continued to talk about the possibility of changing the longer-term rate 10Y at 0% target even before CPI 2% target reached.
In Europe, weaker industrial production hurt the views that the ECB post Draghi Thursday will do anything different until September.
All of these things highlight the doubt about inflation actually returning. So we are all back to easy money hopes and data dependency with a veneer of political noise for excitement.
The risk-on mood just has to get beyond the facts of the U.S. jobs report to enjoy another weekend.
For measuring that forex players return to euro/Japanese yen (EUR/JPY) and the base from the 200-week at 129.50 looking key with hopes for 131.80 and 133.05 Feb. 21 highs to return.
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