EUR 8.70 For Business Accounts Only

The Morning Track orbits

- The Morning Track - Orbits by Bob Savage
http://trackresearch.com/articles/the-morning-track-orbits/

The US dollar weakness as been like a rocket launch for most currencies, GBP and EUR notably, but the trajectory of gains last night has stalled a bit into the ECB Draghi press conference and his expected caution on the FX effect on the inflation outlook for 2018. Call that the return of gravity as a concern. Mnuchin argued at Davos this morning that yesterday’s comments on the USD were consistent – not fully retracting the talk of a new “weaker USD policy” but confusing enough to make Trump tomorrow essential to understanding it. The reversals in the USD weakness overnight stand out and suggest the speed of change is slowing, similar to a rocket shifting from its first stage to the second one, before it reaches the final orbit dancing on the edge of breaking out of gravity’s range. Of course, the analogy begs the question of what currency is the “earth” and which is the “sun.” For many the USD hegemony of reserves is waning while the CNY rising. However,
in this break of the USD, the RMB index lags the broader move compared to its basket (with EUR, GBP, JPY, KRW leading). Others see it more as the return of the EUR as the main alternative. EUR 1.22-1.27 maybe the target zone for 1Q but some see it more 1.20-1.25. Similarly, GBP 1.40-1.45 maybe the orbit zone but others see 1.38-1.43. The compare and contrast of GBP to EUR starts in the way the BOE and UK May government approach the strength against the USD. Hammond endorsed it, Carney hasn’t pushed against it while today we wait for Draghi to repeat the warnings of others on EUR gains being too fast. The other interesting point about today is in the data actually mattering but not perhaps all logically – starting with NZD with lower CPI and in contrast to Korea with lower GDP. The Malaysian Bank Negara raised rates 25bps to 3.25% first hike in 3 ½ years and the stock market there gained led by banks. The German IFO and GfK seem to clash a bit on future expectation
s in the robust economy there while the UK CBI retail sales missed and suggest the GBP rally maybe less helpful to consumers so far. No one is quite certain what Draghi or Trump will say but everyone seems clued into how important their guidance will be for trading all markets. Hot air lifts balloons but can’t seem to break them out of orbit. That might be the key point to take away as the real break away is in oil – with all the implications for inflation and FX intact – as Brent is well beyond $70 with WTI looking for that next.