USD was mixed on the week and EURUSD suffered the most. USDJPY lost its weekly high of 112.20. I’ve been mentioning 112 as a key level to break and stay above on Linkedin all week. We broke we failed.
EURUSD gave up the goose from Monday and Friday’s miss on CPI had saw Draghi’s knowingly wry smile return. If he had a mustache he would be stroking it. I say that because he’s currently in a win win situation – His refusal to taper talk whilst over-looking the rallying headline in EU CPI can now be justified. If Core increases then QE is working. If not he’s justified in waiting to taper. Like I said win win.
On that note ECB sources poured cold water over the markets reaction to their last statement highlighting that “tail risks have reduced” Keep an eye on core EU CPI next month. It will be the game changer. Here’s a snap shot of currencies performances last week:
The Trump saga took a new twist over the weekend when Michael Flynn called for immunity if he decides to spill the Russian beans.
What is the market focused on?
- Current EU reflation has lost its elixir, but is it temporary?
- Trumpflation trades still unsure as USDJPY hangs in the balance. 112 failed to break properly so be aware. FBI not going away with Michael Flynn carrying the baton after the pulled vote a week ago.
- Global reflation still in tact but headwinds could be on the horizon.
- Brexit negotiations begin. The sabre rattling has started with a story over the weekend that the EU is to bill every UK citizen €500 if Theresa May fails to pay Brexit divorce settlement. Call the bailiffs why don’t you.
- US ISM’s, UK Services PMI, NFP, FOMC and ECB Minutes
- Japanese year-end JPY buying over.
- Quarter-end flows took out key levels without a pause. Expect the same for the new month as new flows take time to settle in.
Trading bias for the week: Play both sides of USD in majors but data is king.
The key level at 112.00 failed (we made a weekly high of 112.20) Keep this level in mind as the week unfolds. 111.60 is near term resistance. However, I like buying 111.20 and adding at 110.80 – you are wrong below 110.60 – upside I like selling 112.50
USDJPY DAILY CHART
Small buy at 1.0620 (100DMA) but be careful as month end flows often cause month beginning flows to react and not always favourably .
1.0700 and 1.0770 are key to stay below so expect sellers there.
I don’t like buying with any amount of size until we get to 1.0520
EURUSD DAILY CHART
CABLE – We closed near the highs at 1.2560 and 1.2500 should hold as there’s a lot of support there. If it doesn’t rethink your plan. I like selling 1.2660 and large at 1.2720 and 1.2800
CABLE DAILY CHART
As a foot note I lifted this form Lloyds. It’s a piece about measuring UK CPI.
“With both CPI and CPIH currently running at an annual rate of 2.3%, a 2% CPIH target would be the most likely, providing a near-seamless transition for the monetary policy stance. Nevertheless, with the likelihood of inflation overshooting 2% for an extended period (on either CPI or CPIH), opting for a looser, i.e. higher, inflation target could also be entertained by the Chancellor. A looser target would render the upcoming trade-off between rising inflation and decelerating growth – sharpened by the sharp post-referendum depreciation of sterling – easier for the Bank of England to resolve. “
So what does this mean for CABLE? The answer is I don’t know…….HOWEVER in my humble opinion
- CPI will lift. Lloyds are forecasting 3.3% by the end of 2017
- It will be easier for The BOE to manage expectations on a rate hike
- A higher CPI and decreasing GDP and with weak wages is worrying
- This is why a higher CPIH forecast will give BoE more room for a delay on a hike.
Sell into .7030 as downward trend still in tact. A lot of wood to chop from .7030 and .7084 (100DMA) the .7090 daily highs.
WTI closed firm at 50.77
XAUUSD (Gold) closed in range at 11248.93
That’s it this week. Patrick will be on Linkedin with updates and views.
Enjoy and discuss
Patrick and Adam