Elsewhere, can’t help but notice that as the Euro recovered smartly from the lows, the Aussie was been capped and trading rather sharply lower off the fresh earlier highs overnight versus the US dollar. This could be the flip-side of potential evidence of a bit of exhaustion in these trades, or simply some position reduction ahead of the Thursday ECB meeting (discussed in the EURUSD chart caption above).
The global economy cannot afford ever higher commodity prices unless money supply grows rapidly from here to accommodate them – certainly possible longer term but not seeing any plans for a big new fiscal pulse from the key player: the US. That means that real growth will take a hit as other sectors of the economy must be reduced, eventually meaning recession. Germany and other European countries are set to increase fiscal for new defense priorities. Note long yields coming back higher as well, which are increasingly weighing on the Japanese yen, as the Bank of Japan has shown zero willingness to change its tune on the policy outlook.
The strong payrolls data but weak average hourly earnings data plus the market uncertainty will likely allow the Fed to hike only 25 basis points without much fuss next Wednesday, although it will be interesting to see whether the US February CPI prints with the first “8-handle” since 1982 on Thursday (expected 7.9%, and much of the rise in oil prices has happened since March 1).
Again, my favourite pair for expressing a constructive view that things will turn out alright eventually is short EURCZK as the Czech central bank has enormous firepower and a willingness to use it (intervened Friday) and has also moved aggressively to hike rates, already offering 500 basis points of positive carry.
Table: FX Board of G10 and CNH trend evolution and strength.
Earlier today, the well-embedded trends deepened further, with some snap-back mean reversion in places later in the session today. With a reading like -9.8 in SEK, we can’t help but wonder if we are nearing the end of the potential for a further extension of these trends.