The euro (EUR) and USD may be the headlines but the breakout for diving in risk naked is probably euro/Japanese yen (EUR/JPY) with the 200-day at 131.90 looking very important for a bigger rally in USD/JPY and equities.

The best way for markets to rally is with imagination. Clothing plays an important role today in UK CPI, in the advisory role for all beach goers as they play in the ocean but risk the tide going out. Some things are best left to imagination and trading positions in a choppy FX market is one of them.

The world returned to an old favorite story for USD strength – FOMC rate divergence. FOMC Jerome Powell’s testimony was sufficient to drive down gold, Japanese yen (JPY) and oil yesterday.

The U.S. rate curve focus becomes more intense as the yield on 10-year U.S. Treasuries rose 1bp to 2.87%, while that on 2-year notes touched 2.62%, its highest since August 2008. Today it’s about the British pound (GBP) and the CPI data casting doubt on the BOE August hike. Key to CPI was that clothing sales fell making beach going that much more interesting.

Also, it’s about the political risks for UK Theresa May as she wins the Brexit battle at home but may lose the war with the EU. The threat of new elections was one tool she used to win those votes and it’s unsettling today.

As for the euro (EUR), it’s weaker as core CPI drops lower and the U.S. talks with the EU look to start up again as Juncker visits Trump next week.

The weakness in forex in Europe has helped stocks bounce there but this didn’t do much for Asia as they remained troubled by trade and the cost of borrowing. There is a lesson of divergence at play today and that maybe the key for trading a market of stocks as opposed to a stock market with earnings the focus along with FOMC Powell part 2 of his testimony.

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