The euro (EUR/USD) and the New Zealand dollar (NZD/USD) were the dogs overnight in G7 and may be the key to understanding how much more you can get from U.S. rates today, writes Bob Savage, CEO of Track Research Tuesday.

The difference between tactical trading and strategic investing seems to be the key ahead of the ECB and BOJ meetings this week. Some asset classes are more inclined than others to trade by story. Equities, in particular, like a good yarn to drive money flows, like Alphabet (GOOGL) making gobs of money, providing a longer-term perspective on the shorter-term pain from regulation fear.

For bonds, tactical trading around the almost magical level of 10-year U.S. yields 3% seems more important. The longer-term story of FOMC rate hikes inevitably leading to higher rates gets lost. The USD seems to be caught between such tactical considerations and the bigger strategic stories about geopolitical fears and U.S. inspired growth with the 1Q GDP data at the end of the week the key glue mixing both together.

Buying the dip of the USD in the last month worked but not at all like the same tactic for equities. Volatility is the key differentiator and may remain so. The power of economic data overnight was less important than the political noises.

Sure. Australian 1Q CPI missed and the Australian dollar (AUD/USD) is making new yearly lows, but that isn’t just about the RBA reaction function.

The focus on China easing and money running to equities matters more. PBOC sources leak to the price more RRR cuts and higher M2 is coming, driving up equities.

German IFO was weaker but rebased while French confidence drops and Italy holds.

UK deficits are smaller and they actually see the C/A improving – all of which left rates watching the U.S. and forex doing nothing. The overnight list of political stories driving EM looks important – from the Armenian PM quitting after huge protests, to the U.S. extending its deadline for investors on sanctions regarding Rusal, driving down metals prices sharply, to Italy’s Five Star setbacks in local elections putting its bid to control the new government at risk, to the Nicaraguan protests over social security reform boiling over to anti-Ortega riots leaving the U.S. and others pulling diplomats.

Populism in Latin America from Venezuela to Nicaragua to even Mexico and Brazil looks costly. Socialism works until you run out of other people’s money. The U.S. headlines maybe more about Trump and Macron and their talks over Iran and their joint press conference Tuesday morning on trade and climate change.

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