This week is chock full of interesting event risks related to US interest rates and Fed policy, not to mention the ongoing political storm over the US budget. Meanwhile, is crude oil moving EURUSD just as much as it is the commodity currencies lately?
The USD remains relatively weak after Friday’s huge add-on ramp in commodity prices, though the new highs in crude oil and precious metals were tempered in today’s trade on the potential for an African Union brokered ceasefire in the Libyan civil war. The last minute deal on Friday saw surprisingly little reaction from the market as Monday opened, suggesting that the run-up on Friday in EURUSD/rundown in the USD in general had little to do with the budget deal. Of course, the wrangling on the US budget is far from over and the risk of a US government shutdown is still a very clear and present one.
Chart: EURUSD
EURUSD rushed to a new high on Friday as the consensus looks for ECB rate hikes to outpace those for the Fed in the coming year or more. But are ECB expectations simply a derivative of the oil price at the moment? This and the idea of petro-states’ reserve diversification mean that oil will continue to exercise a very important influence on the greenback’s trajectory, of not also the Euro’s. 1.4250 is the key support after last week’s testing of this level from below and then above.
EURUSD rushed to a new high on Friday as the consensus looks for ECB rate hikes to outpace those for the Fed in the coming year or more. But are ECB expectations simply a derivative of the oil price at the moment? This and the idea of petro-states’ reserve diversification mean that oil will continue to exercise a very important influence on the greenback’s trajectory, of not also the Euro’s. 1.4250 is the key support after last week’s testing of this level from below and then above.
USA: interesting week for treasuries/Fed view
We have a critical week for US interest rates this week as we covered last week: influential permanent voting member Yellen will be out speaking today at the prestigious Economic Club of New York later today. Her words over the weekend indicating that it is too soon to exit from unconventional policies indicate that she is still on the dovish majority at the Fed. Later this week we have the Fed’s Beige Book on Wednesday and the PPI and CPI releases on Thursday/Friday, respectively, together with the latest reading on the University of Michigan inflation expectations. That latter figure has begun accelerating higher and has to be getting the attention of even the Fed’s Bernanke if it continues, even as he and the rest of the dovish contingent continue to insist that inflation will be transitory. That will all entirely depend on the trajectory of gasoline prices, as any comparison of year-on-year changes in gasoline prices vs. inflation expectations will show you.
We have a critical week for US interest rates this week as we covered last week: influential permanent voting member Yellen will be out speaking today at the prestigious Economic Club of New York later today. Her words over the weekend indicating that it is too soon to exit from unconventional policies indicate that she is still on the dovish majority at the Fed. Later this week we have the Fed’s Beige Book on Wednesday and the PPI and CPI releases on Thursday/Friday, respectively, together with the latest reading on the University of Michigan inflation expectations. That latter figure has begun accelerating higher and has to be getting the attention of even the Fed’s Bernanke if it continues, even as he and the rest of the dovish contingent continue to insist that inflation will be transitory. That will all entirely depend on the trajectory of gasoline prices, as any comparison of year-on-year changes in gasoline prices vs. inflation expectations will show you.
Also very interesting are the US treasury auctions this week, with the 3-yr., 10-yr., and 30-yr auctions on Tuesday through Thursday, respectively. The key point here is to note that the last two bond market rallies were initiated on the day of the 10-year auction, so we’ll focus on that one (on Wednesday) as the critical one. The outlook for the JPY crosses in particular will hinge on the trajectory of bond rates.
Looking ahead
Besides all of the expectations surrounding the trajectory of US interest rates this week, the US earnings season kick-off today is of critical importance in testing assumptions about company valuations, particularly in light of the threat to margins from input price pressures. Those pressures are obviously immense and the onslaught of earnings reports will tell us whether companies have sufficiently protected themselves with long term supply contracts and to what degree inflation is biting in the here and now.
For the longer term market observer, the key speech this Wednesday from Obama on the 2012 budget will help tell us the degree of reality that may or may not be creeping into the budget debate as Obama has promised to address entitlement spending – as galloping medical costs in particular must be addressed if the US is ever to dream that it can balance its budget.
We should also keep an eye on Libya for whether Ghadafi is buying time with this African Union ceasefire deal over the weekend or whether he is just buying time before resuming hostilities. From the “character” angle, one would suspect the latter. In any case, oil prices have responded a bit to the downside on Ghadafi’s overtures.
Besides all of the expectations surrounding the trajectory of US interest rates this week, the US earnings season kick-off today is of critical importance in testing assumptions about company valuations, particularly in light of the threat to margins from input price pressures. Those pressures are obviously immense and the onslaught of earnings reports will tell us whether companies have sufficiently protected themselves with long term supply contracts and to what degree inflation is biting in the here and now.
For the longer term market observer, the key speech this Wednesday from Obama on the 2012 budget will help tell us the degree of reality that may or may not be creeping into the budget debate as Obama has promised to address entitlement spending – as galloping medical costs in particular must be addressed if the US is ever to dream that it can balance its budget.
We should also keep an eye on Libya for whether Ghadafi is buying time with this African Union ceasefire deal over the weekend or whether he is just buying time before resuming hostilities. From the “character” angle, one would suspect the latter. In any case, oil prices have responded a bit to the downside on Ghadafi’s overtures.
Tonight we have a couple of interesting reports out of the UK, with the BRC “like-for-like” (same store sales for most of us) data out for March and the March RICS House Price Balance number, which provides the most forward view of the UK housing market. The latter has shown a slightly improving tendency over the last few months, though there are still more agents reporting falling rather than rising prices.
Economic Data Highlights
- China Mar. Trade Balance out at +$0.14B vs. -$3.35B expected and -$7.3B in Feb.
- New Zealand Mar. Retail Card Spending rose +1.3% MoM
- Japan Feb. Machine Orders out at -2.3% MoM and +7.6% YoY vs. -0.9%/+9.0% expected, respectively and vs. +5.9% YoY in Jan.
- Norway Mar. CPI out at +0.3% MoM and +1.0% YoY as expected and vs. +1.2% YoY in Feb.
- Norway Mar. Underlying CPI out at +0.2% MoM and +0.8% YoY vs. +0.4%/+0.9% expected, respectively and vs. +0.8% YoY in Feb.
- Norway Mar. Producer Prices including oil out at +2.5% MoM and +21.4% YoY vs. +1.2%/+21.2% expected, respectively and vs. +21.2% in Feb.
Upcoming Economic Calendar Highlights
- US Fed’s Yellen to Speak at Economic Club of New York (1615)
- UK Mar. BRC Sales Like-for-like (2301)
- UK Mar. RICS House Price Balance (2301)
- New Zealand Mar. QV House Prices (0000)
- Australia Mar. NAB Business Conditions/Confidence (0130)
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