EUR 8.84 For Business Accounts Only

The Morning Track causation

- The Morning Track – Causation by Bob Savage
http://track.com/articles/the-morning-track-causation/

Correlation isn’t Causation. Markets traded yesterday on Trump and FOMC minutes and the move in bonds lead to a weaker USD but not everywhere. We can do it all again today with the ECB minutes – but don’t expect the same confusion or excitement. The questions for today revolve around the EUR effect on the ECB and what made Draghi dampen hopes for an earlier taper. The FOMC was seen as dovish because many of the participants doubted their 2% CPI target – will the same be true for the ECB? The hawkish side of FOMC balance sheet normalization was shoved aside by traders will they be the same to the ECB? These are the questions that dominate FX markets today as the USD is half the equation and the FOMC is no longer the cause for dollar moves. Overnight the JPY gained on weaker US rates and better trade data but reversed in London with rates and EUR. AUD gave back gains as jobs data was part-time and hours worked fell suggesting more capacity and time for RBA to wait
. The UK retail sales was a key driver for GBP to outperform even as EUR/GBP calls for 1.0 proliferate. The Eurozone CPI was in line to flash and no surprise leaving ECB time to taper but the trade surplus highlights the vulnerability of geopolitical risks ahead with Trump on back foot leaving NAFTA and China and perhaps German trade talks all central to the next domino shove. Correlation of what drivers matter to markets is shifting from rates and central bankers to something else – political stability, growth and safety – with CHF and Gold flashing yellow into a world that has been given plenty of cause for concern. The EUR remains the key consolidation game for today – with 1.1680-1.1880 the broader risks for breakouts.