The breakdown of euro this morning may be the key to understanding the rest of the global macro story unwind with 1.2250 and 1.2209 important, writes Bob Savage, CEO of Track Research Friday.

Reality for markets is price and volume but confidence and the will to trade wrap around the forward guidance from central bankers and politicians along with CEOs.

The battle for the bulls today revolves around earnings and guidance. The Bank of England Carney BBC interview unwound the British pound (GBP/USD) and lifted Gilts Thursday and is the battleground for trend players today as the reversals put into doubt whether other central bankers follow the Fed in normalization regardless of economics.

Is the battle over getting back to usual or inflation? The BOJ may look at the data last night and shrug – with Reuters Tankan diving and CPI low and going nowhere. The 1Q global slowdown due to weather remains a story, not a fact – as there may be larger forces at play.

The unreliable boyfriend quality of forward guidance showed up Thursday and the effect of gas-lighting the markets seems clear. If you tell markets that the economy isn’t strong enough for real rates to go up and to fear Brexit, they will begin to believe it and act accordingly.

Tell them winter was too cold, even as they sweat in the sunny Spring, they will shiver. Then comes the confusion with BOE Saunders making the hawkish case: “With spare capacity largely used up and cost pressures rising, I believe the economy no longer needs as much stimulus as previously,” Saunders said in his speech at the University of Strathclyde today.

The problem is that with inflation over 2% and with QE ongoing and rates at 50bps – the implied rate hikes to get to 1.25% are three years from now. This too is the problem for the ECB.

Compared to the FOMC which talks of steady hikes through 2019 – read Mester’s speech – the risk is on the upside for euro (USD/EUR) and GBP rate moves. Or so the market acts accordingly as forex lags. The drop in gold and palladium prices overnight highlight the return of focus from geopolitics to policy and economics – we are back to inflation and growth, wages and debt as key drivers.

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