EUR 9.28 For Business Accounts Only

The Morning Track selective-hearing

- The Morning Track – Selective Hearing by Bob Savage
http://track.com/articles/the-morning-track-selective-hearing/

We only listen to what we want to hear. That has been the lesson of internet politics whether in the US or UK and perhaps it will be so in France, but the new world without borders and time constraints today has left the polls pointing to Macron as still the favorite for the French Presidency (up 2% to 63% in second round) after his debate performance where he didn’t stumble, nor was he attacked convincingly by either Fillon or Le Pen.

What he said matters less than the reaction of public polling (29% said he won the debate) and the market has bought risk accordingly as fear of extreme politics fades further. The EUR trades at 6-week highs despite the US rate differential holding. A USD rally in Asia, fizzles in Europe. The other news was less obvious for adding to risk:
o UK CPI at 3-year highs of 2.3% y/y – exceeding 2.1% BOE forecasts and over 2% target for first time since Nov 2013.
o Swiss SECO cuts GDP outlook for 2017, lifts inflation for 2018.
o RBA Minutes warn on housing risks and low wages
o UK will trigger Article 50 on March 29 – starting 2-years of talks
o Chicago Fed Evans said 3 hikes reasonable for 2017, 4 possible
All of this suggests that the big theme of US rate and growth divergence is less clear as inflation goes up everywhere. The risks of higher US rates have been met by the world with higher global rates. This leaves the USD as the first victim and the one story that can’t get out of the way for FX macro positions. Once again we are all EUR traders first as it’s the only viable alternative to the USD until the CNY and CNH become one open and freely traded currency. Target of 1.0950 in EUR restarts momentum and trend following models.