EUR 8.14 For Business Accounts Only

The Morning Track awkward-balance

- The Morning Track – Awkward Balance by Bob Savage
http://trackresearch.com/articles/the-morning-track-awkward-balance/

The USD moderated its rise overnight, ostensibly because of the slightly dovish FOMC decision, but also because of the return of geopolitical fears with trade issues and talk of Trump ending the Iran deal stinging. Circle May 12 for volatility – that is the deadline for the decision. Throw in ongoing noise about the Mueller investigation and more mid-term doubts for Republicans. The weaker USD reflects a weaker global risk appetite. The FOMC was balanced in its view of inflation, acknowledged the slowing 1Q growth but saw business investment increasing. Outlook for a June rate hike is 95% priced. The question if September and the effect of the mid-term elections, the tariff/trade war risks and the like. What is interesting is the number of headlines saying this was hawkish rather than dovish. The USD fell then recovered while the US yield curve steepened. Clearly, there is an awkward balance of risks to the FOMC policy going forward. There was a host of news outside the
US as well. Let’s start with the Norges bank keeping rates unchanged at 50bps but keeping its forward guidance for a rate hike sometime after summer. This leaves the NOK vulnerable in the short term to data that may force a further delay and to the EUR/USD moves ongoing. The AUD trade data overnight surprised to the upside and makes clear that A$ looks cheap. China growth hopes remain the bigger story with the easing of rates and opening of the financial sector dominates. The weaker Eurozone HICP – particularly in the core – makes the fear of an ECB tapering less obvious while the UK Service PMI adds to the too modest bounce backs from March to support BOE action. The USD bounce back died on these stories.
The JPY maybe the right risk off barometer for today given the fears about Asia trade and the rising oil price story. Wake up if 108.80 or 110 breaks.