Oil prices jump after Iran says critical Strait of Hormuz to remain shut
Markets are turning a blind eye to geopolitical developments (both Venezuela and Greenland), and data should regain a lot of centrality as a key market driver for the second half of the week. Today, ADP, JOLTS and ISM services releases carry some downside risks for the US dollar. The outlook for more rate cuts suggests weaker FX in CEE
USD: Data Might Hinder Momentum
The Venezuelan shock has largely faded. Oil softened yesterday but remains near pre‑4 January levels, equities extended gains, and FX markets have turned away from geopolitics. This reflects the post‑’Liberation Day’ reluctance to trade the headlines and lean to more sanguine views.
The dollar regained some ground yesterday – but that is probably due to some seasonal inflows and a modest uptick in front-end swap rates rather than geopolitics. Unless the US escalates threats on Greenland or intervenes again in Venezuela, markets should refocus on data in the second half of the week.
Today, ISM services are expected to come in soft, but it will probably be ADP (consensus 50k) and JOLTS job surveys driving price action. Interestingly, ADP payrolls undershot consensus in seven of the last 10 prints, and given our dovish view on the US jobs market, we are inclined to see US jobs data events as bearing asymmetrical downside risks for the dollar.
Beyond today, our short-term view remains neutral to slightly bullish on the greenback.
EUR: Inflation May Undershoot, ECB Implications Limited Though
German inflation undershot consensus yesterday, decelerating to 1.8% YoY (2.0% in EU harmonised terms). As our economist notes here, the disinflation appears broad-based – i.e., beyond the base effect – with prices falling in leisure, clothing, and food.
That raises the chance of a sub-2.0% print today (consensus is at 2.0%) for the eurozone CPI flash estimate. Expectations are for the core CPI to remain unchanged at 2.4%, though; that is a measure that needs to start trending lower more decisively to revive any dovish dissent within the ECB.
For now, implications for ECB rate expectations are likely to be limited unless inflation starts undershooting materially and consistently. By extension, the euro may not be taking many cues from the print and will remain almost entirely driven by the US dollar leg.
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