Today’s March US CPI release may carry more weight for US dollar direction than the Federal Open Market Committee meeting minutes, especially on a downside miss for the core reading (expected unchanged at 2.1% YoY), which would likely raise anticipation of Fed moving towards an easing bias.
Trump’s recent, obviously political nominations for the Fed have been chosen for favouring rate cuts. And another political voice was out
favouring rate cuts yesterday – Republican Senate Banking Chairman Crapo. If core inflation slips back below 2.0% in coming months, the rate cut anticipation will likely creep higher again after recent strong risk sentiment has actually seen the market’s expectations for a rate cut this year ease significantly. At present, odds are only slightly higher than 50/50 for a Fed cut by the December 2019 meeting.
The crunch Brexit summit today will likely produce a long delay for the UK until at least the end of this year as European Council President Tusk has rejected Theresa May’s request for a shorter postponement of the Article 50 deadline. The Tory party looks ready to rip itself apart over the issue and Theresa May’s days as prime minister are likely numbered unless she can agree on the customs union rout with Labour.
That is the last hope for the near term for sterling bulls, unless there is more fear priced into sterling at present about a cliff-edge Brexit than I believe is the case. If we see the cross party effort fails and the eventual path is towards a second referendum, it likely wouldn’t arrive until many months from now and leave sterling vulnerable to underperformance on the fear that No Deal is still a long-term possibility.
Trading interest
Long AUDNZD on dips for 1.0700+, stops below 1.0450
Short EURNOK with a short leash after today’s CPI release (stop above 9.65) for a move below 9.50.
Chart: EURUSD
In today’s chart, we remind readers what happened over the last two major respective central bank meetings – the March European Central Bank meeting, which produced a dovish surprise and EURUSD price action that was unable to sustain a break lower. A similar setup was the case over the March FOMC meeting, which likewise couldn’t inspire a break above the range highs. With less at stake at today’s ECB meeting, if EURUSD makes a move here, it will likely be down to other considerations – possibly US CPI data later or something anticipated in the FOMC minutes, or concerns that the EU and US are set for a round of trade hostilities, though the bar is rather high there for a reaction.
