FX Week Ahead: Myopic Markets Hit USD On Inflation Miss

FX Week Ahead – Myopic markets hit USD on inflation ‘miss’ – rest of the major economies in focus ahead.
Once again, sluggish inflation takes a hammer to currency and we saw the USD turn back from a tentative recovery, which many still see as corrective against some of its major counterparts. In comparative terms, we still feel the numbers out on Friday were not as bad as the pundits and markets perceived, but liquidity in the summer is not at its best at short term (reactive) flow gets the ‘benefit’ to some degree, with the usual suspects winning out – for now. The core rate held 1.7% – so that is 3 months in a row now, but the headline was up from 1.6% to 1.7% instead of 1.8% – small potatoes at the moment, but when looking at this as a global phenomenon, the impact was a little too one dimensional/sided, but next week will naturally tell us more.
No surprise then to have seen the EUR shooting back into the mid 1.1800’s again as the revival in Europe continues to draw in investors. As we have seen in the sharp upturn in EUR/CHF, dormant cash on the sidelines is now being deployed, but at a pace which may unnerve the ECB who are ever wary of seeing another taper tantrum get out of hand. Not that they have to worry about the rates market at the present time, with tensions between the US and North Korea driving money back into fixed income and safe haven in general, with the benchmark German 10yr now under 40bps again alongside the T-Notes pulling back further into the low 2.00%’s. The spread has been widening again, but the near term correlation with EUR/USD has diminished (to put it politely) and after the very brief dip under 1.1700, 1.2000 is back on the radar.

This post was published at Zero Hedge on Aug 13, 2017.