“The euro is an island of stability.” – thank you, Mr Draghi, for the EURUSD move, hitting the first tactical target (1.3840). Took profit on half, keep the rest for a run to 1.42. Fact of the week from ECB: “each 10% PERMANENT effective exchange rate appreciation lowers inflation by around 40 to 50 basis points.” Nothing is permanent. EUR is just erasing the EMU-crisis weakness.
Figure 1. Room to go for EUR
We do have the euro area industrial production out this week: first out, Germany’s figures last week were very expectedly encouraging (weather, sure weather – too good for Europe…Maybe it’spermanent too).
Figure 2. Germany back to basics
Hopeful USD bulls were expecting the USD roar back on Friday’s slightly better payrolls …meh. Better, really? Hourly earnings rise potentially due to bad weather (low-skilled workers just stayed out of sample). And, curiously, prime age people coming back to the labour force, helping push unemployment rate higher (Figure 3)! We still need to wait for another month for clearer picture. Bad news: the March payrolls survey in this coming week, and weather is not looking good in the US, still… Perma winter? The US retail sales – this week’s highlight – with bad weather, you preferably buy more stuff online. Stay calm, and keep selling DXY on hops toward 78.
Figure 3. Back to labour market?
Not exactly good news from China over the weekend, with inflation at 13-month lows, PPI deeply in deflation (major global deflationary force), and the trade balance collapsing to new lows, against the 7.5% GDP target announced just last week. The corporate default, the first probably not the last… no wonder, the copper price collapse on Friday. Weaker CNY should be tempting for policymakers. That said, bad news is bad news, and is no longer news from China, thus the AUDUSD looks like a good “buy on a dip”, for a potential move toward 0.93. Hold the AUDNZD long as a minimum (RBNZ hike this week is totally consensus). Employment indicators are encouraging from Australia, fingers crossed for this week’s employment numbers on Thursday.
Figure 4. Good news pending
The BoJ does not have a reason to change the tone or policy path as they meet this week. It would probably bring us to H2 2014 to even get a slight chance of more easing – before they will need to see how the 3%pt VAT tax hike in April will affect the economy – and be reversed (in 1997 a similar tax hike was followed by recession). But the JPY, now purely a global factor play, could weaken a bit more short term on benign risk sentiment holding (assumption). Hold the USDJPY short (just to hedge EURUSD long) until 103.75.
Figure 5. Make or break – USDJPY
The UK housing market figures look just hot, but…hey, the BoE are not going to deal with this with “blunt” rate hikes. Expect more macroprudential measures instead. GBP longs are too long, still. Finally, the EURGBP got kicked to 0.8300, and yet needs to push a bit harder up to confirm the break of the downward wedge. Any reason this week? If anything, Carney, Miles, Weale are to speak on Tuesday – expect nothing, and you could be surprised.
Nordea