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FX Risk Is Back On

Published 08/14/2017, 06:16 AM
Updated 07/09/2023, 06:31 AM

Market Drivers August 14, 2017
  • In FX Risk back-on
  • CNY data misses
  • Nikkei -0.98% DAX 1.01%
  • Oil $48/bbl
  • Gold $1281/oz.

Europe and Asia
CNY: IP 6.4% vs. 7.2%
CNY: Retail Sales 10.4% vs. 10.8%
EUR: EZ IP 2.6% vs. 2.8%

North America
No Data

Risk trades came roaring back in the currency market on the first trading day of the week, with USD/JPY gaining 80 points off its lows while EUR/CHF was once again above the 1.1400 mark. Traders cited the easing of tensions with North Korea as the war of words appears to have abated, but the move appeared to be a classic short covering rally as the dollar rebounded after several days of heavy selling.

On the eco front, the data was actually disappointing with Chinese Retail Sales coming in 10.4% versus 10.8% while Industrial Production declined to 7.2% from 7.6% eyed. But the markets ignored the news as the relief over North Korean nuclear threat was the dominant theme of the day.

In Europe, the calendar was very light as well with only EZ Industrial Production on the docket which also missed at -2.6% versus -2.4% forecast. The EUR/USD drifted lower to test support at 1.1800 level, but remained firmly bid and is still trading near multi month highs.

Although the dollar saw a rebound in the today’s trade, it remains inordinately weak as market expectations of Fed rate hikes have been ratcheted down markedly. The primary reason for scepticism in the bond market is that despite relatively buoyant US job growth, consumption continues to be anaemic.

Retail Sales have missed their mark five out of the last six months and only grew at 2.8% nominal annual rate in June. The persistent refusal of the consumer to ramp up spending is clearly worrying the bond market which sees little prospect of growth ahead. To that end, tomorrow’s US Retail Sales numbers could prove crucial to the dollar rebound. The markets are looking at a bounce of 0.3% from -0.2% the month prior and if the numbers match expectations they could provide further fuel for USD/JPY move beyond the 110.00 figure, but if the data misses once again the pair could plunge to fresh lows as the week proceeds.

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