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Data/Event Risks

  • EUR: The market expects Eurozone inflation to fall below 2% when the ‘flash’ estimate is released at 10:00 GMT.   This would be the first time for over two years that headline inflation will have been below target.   Weaker number would nudge euro lower, but focus remains on Italy and the possibility of a government being formed.
  • USD: The ISM will be of most interest at (15:00), although a stronger number may not be that dollar positive, at least judging by the recent reaction, with the dollar soon sold after last month’s stronger than expected outcome. See how to trade this event with EUR/USD.
  • GBP: Beware with sterling data, as against the current backdrop stronger activity data could be taken as a reason to find better levels to short the currency.   That said, a more aggressive short-squeeze higher on cable can’t be ruled out given the extent of the sell-off over recent weeks and volatility risks are higher on a Friday.

Idea of the Day

Eighteen months ago the US agreed a package of severe spending cuts as a means of forcing politicians on both sides to come together and agree on something far more sensible.   The plan didn’t quite work out as planned, so today these spending cuts come into force in the US.

Financial markets have been through several of these budget battles in the US in recent years and there’s an underlying expectation that a deal will be stitched together and then be back-dated.   This may happen, but the fact that the US is proving to be so bad at dealing with its budget challenges in a more grown-up way does spell danger for the future.   For now, we could see the dollar hold its better tone as the risk aversion bid trumps the fiscal mess offer.

Latest FX News

  • EUR:  Still feeling a little vulnerable on the first trading day of the month, with the 1.30 level a little too close for comfort. Eyes are on ECB 3Y loan repayment window today at 11:00 GMT.
  • JPY:   The latest inflation data showed prices still falling. On the headline measure, prices were down by 0.3% YoY and on the measure excluding fresh food by 0.2%.     Naturally, this leaves the 2% inflation goal a long way off and expectations are strong that new BoJ governor Kuroda will put in new measures in April.
  • GBP:  Latest data on house prices (from Nationwide) showed annual rate at zero. Overall, sterling is still struggling to find direction and vulnerable to some choppy activity on first trading day of the month.
  • AUD: Aussie holding its ground during the Asia session. Continued hold above 1.0150 on AUDUSD should allow longs to build once again in the established range.
  • CNY: Gaining some ground after recent declines after softer than expected purchasing managers reports overnight. The manufacturing series fell to a 5 month low at 50.1.   CNH continues to strengthen, down to a 2 week low at 6.2175.