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  1. #201

    Crude is steady after Abu Dhabi cut supplies

    Crude is steady after Abu Dhabi cut supplies

    On Friday, crude prices were steady, as the beginning of supply drops by Saudi Arabia as well as Abu Dhabi backed the market, though doubts, which all producers are going to implement production reductions, agreed in a landmark deal the previous year kept financial markets from ascending further.

    Brent crude futures were trading at $56.85 a barrel, tumbling 4 cents from their close yesterday.



    In America, West Texas Intermediate crude futures demonstrated $53.74 a barrel, just two cents below their previous settlement.

    Thursday's prices rallied following reports of supply drops from Saudi Arabia as well as Abu Dhabi coming into effect as part of huge efforts by the OPEC and also other producers to curb a global supply glut.

    Overall supply from OPEC in December dropped moderately to 34.18 million barrels a day from the revised outcome of 34.38 million bpd in November, following a Reuters poll this week built around shipping data as well as information from industry sources.

    [Only registered and activated users can see links. ]Important Forex News Daily.

  2. #202

    AUD Outlook

    Last week has set the pair up for potentially substantial losses.
    Falling Wedge I snow becoming apparent.
    Retail Sales data no in focus for the week ahead.


    The AUD moved largely in step with market sentiment last week and this has set it up for a potentially bearish period moving forward. Specifically, the pair’s price action is suggestive of a rather steep falling wedge structure which could see losses begin to accumulate moving ahead. However, it is important not to neglect the fundamental bias as we look ahead as there could be a few key things to watch out for this week.
    Starting with last week’s performance, the Aussie Dollar managed to resist the effects of Monday’s broadly stronger US Manufacturing results to a significant degree, largely due to the Australian Commodity Prices figure of 45.5% y/y. However, the data also primed the pair to seize on the shift in sentiment away from the US Dollar which occurred mid-week. Moreover, a subsequent Australian Trade Balance of 1.24B mitigated the fallout of Friday’s resurgent USD which saw the pair hold on to the majority of the week’s hard won gains.
    On the technical front, the AUD’s declining price action seems to be narrowing and forming a loose falling wedge structure. As a result, we are expecting to see some more bearishness for the pair in the near-term, even if there is likely to be some correction to the upside in the immediate future. This continued decline would be in line with the EMA bias and the general tone of the last few weeks of Australian fundamental data. However, the relative neutrality of the RSI leaves the pair with some options which could allow an upside breakout to eventuate if a sizable fundamental upset occurs in the coming week.
    As for said fundamentals in the week ahead, both the Australian and US Retail Sales result are due to be released which could see some volatility occur during the Tuesday and Friday sessions accordingly. This being said, the two figures are forecasted to show some solid improvement which could see them largely offset one another in the absence of some stronger supporting data. As a result, also keep half an eye on the Australian Job Vacancies and the US PPI figures which are due out on Wednesday and Friday respectively.

  3. #203

    New Year, Same Old Themes?

    New Year, Same Old Themes?

    This is my first note of 2017, and after 2.5 weeks off, forgive me if I am a little rusty. I’m hoping a fresh blast of Alpine air during the past week has cleared away the cobwebs, giving me fresh focus for the months ahead. Looking at the key charts, the first week of the year could set the tone for what is to come. The volatility in Treasuries is the most interesting thing to note, and the decline in the pound suggests that there are further GBP bears out there.
    To ease myself gently back into work, here is a list of the key things that I am watching this week.
    Trump press conference: this takes place on Wednesday, and each word is likely to be scrutinised almost as much as Janet Yellen’s press conferences. Watch out for any comments about trade tariffs and his feelings towards China. Treasuries may rally and the dollar could fall if Trump says anything controversial, but we expect him to stick to saccharine stuff during this speech, including family thank–you’s etc. Thus, we wouldn’t be surprised if we see yields fall and risk rally on the back of Trump’s speech, as long as he doesn’t digress from the script.
    UK economic data: manufacturing is expected to have ended the year on a high note, up some 0.5% for November, according to Bloomberg economist estimates. But, the trade balance is expected to look fairly grim, suggesting that the large decline in sterling is not having an impact on the UK’s large trade deficit. GBP was one of the weaker performers in the G10 last week, we shall have to see if strong economic data can trigger a pullback to the 50-day sma at 1.2438, or if headlines from the Sunday papers about an indecisive PM and muddled Brexit plans lead to another leg lower in GBP/USD, potentially below 1.20.
    Supermarkets: The UK’s supermarket giants could release some much-needed good news this week. Some IB’s are expecting “strong” (read better than previous years’) Christmas trading figures for Morrison’s and Tesco, released on 10th and 12th Jan respectively. Investors will be on the look out for signs that our indigenous supermarkets are catching up with the likes of Aldi and Lidl. Expectations are for fairly modest increases in sales compared to last year, however, anything stronger than expected could see some belated festive cheer for Morrison’s and Tesco’s share prices.
    Treasury market gets tested: The first major sale of US Treasuries takes place this week. $56bn will be auctioned. The key question for bond and dollar traders is whether prospects of a bear market for Treasuries will make US debt harder to sell, especially to deep-pocketed foreign investors. Any signs that it is indeed getting harder may see bond yields surging after last week’s wobble. This could be good news for the dollar in the short term, even though consistent struggles to sell Treasuries this year is likely to erode support for the dollar over the longer-term.
    Oil: crude closed last week close to its highest level since 2015. This uptrend shows no sign of slowing down, although $60 is a major resistance zone for Brent, and is less than $3 away. We expect the market to test this level, and if it can slice through it, then we could see extended gains for the commodity currencies like the NOK, AUD and CAD, which were the best performers in the G10 FX space last week.
    US stocks: Retail sales data, the Trump press conference, and a speech from Janet Yellen are all important for stocks this week, but could the major US indices be running on borrowed time? The Dow was so close to 20,000 on Friday and we expect it to breach this level this week. But what then? Declines in the Russell 2000 (US small cap index) and the Dow Jones transport index, both typically leading stock market indicators, make us a little nervous that a breach of 20,000 will fail to herald a new, more energised rally for stocks, and instead we could see a pullback if 20,000 is breached.

  4. #204

    Never A Dull Moment in the World of Foreign Exchange.

    Never A Dull Moment in the World of Foreign Exchange.
    As we move into the second trading week of 2017, two macro narratives are evolving: Chinese FX policy and US interest rates. For traders that were expecting a free lunch in early 2017, going long on USD and short on bonds, the market has quickly reminded them that nothing comes easy in the world of Foreign Exchange. Early 2017 trade has been full of twists and turns. You know the old saying, there is no dull moment in the world of FX, and last week was the proof in the pudding.
    Exaggerated moves in G-10 last week were more about heavily skewed short-term long USD positioning jitters, after a subtle shift in Investor sentiment emerged, suggesting the recent moves in US yield have run up far too quickly. This notion could dampen the USD bull’s short-term enthusiasm and despite supportive US data, the USD may continue to consolidate before the anticipated resumptions of the USD uptrend, which should return full-bore post-Trump inauguration.
    As for the near-term calendar, although not jam-packed, we may be in for some excitement none the less. Tuesday could be very engaging if Chinese CPI or PPI deviates from expectations and of course, Aussie traders will dial in on domestic retail sales that same day.
    With attention squarely on China this week, the AUD could re-emerge as the quintessential China proxy trade.
    However, my focus is on Friday, as Fed Chair Janet Yellen will deliver a speech on Thursday evening (EST), which will be available on webcast. Given the markets focus on all things Feds, we could be in for bustling APAC session at the end of the week. China’s December trade report will also be released on Friday.
    NFP
    Traders treated last Friday’s NFP with little importance ahead of President-Elect Trump’s inauguration and possible policy game changers. While the 156K rise in non-farm payrolls in December fell short of market expectations, the huge story that emerged was the sharp gain in average hourly earnings (AHE), which was the call to action for traders, as the employment report was viewed in a positive light. Keep in mind that both resurgent wage inflation, coupled with buoyant oil prices, have been supporting the reflation trade. Thus, US bond yields rose on the AHE headline and a stronger USD ensued. Despite the 10 Year UST yield moving higher to 2.42-3% after a holiday-induced position squaring rally, the S&P closed at a record high, while the Dow Jones closed at 19,963.8, just shy of the major psychological 20,000 mark.
    Non-aggressive USD buying mainly centred on USDJPY, EURUSD and USDSGD
    AUD
    While the AUD closed the year on an offered note, the odds of that bias to re-emerge strong and a recent sell-off in USDCNH has permeated into strength in commodity currencies, as the AUD remains tentatively perched just below the .7300 level.
    If you’re surprised by the uptick in volatility to start the year, you are not alone, as a vicious wave of short CNH covering, on the back of ridiculous funding costs, has caught more than a few traders by surprise. While the effects have spilled over into the G-10 basket, memories of 2016 China hysteria gripped the market. The fact is, it appears to be more or less a CNH contained phenomenon and has not affected general market sentiment anywhere near to the panic levels of early 2016.
    As the CNH effect begins to temper, not a great deal has changed in the AUD trade. A tug of war between commodity prices and rising US interest rates will continue to play out, as will a possible trade disruption from political uncertainty associated with the US Presidential transition and regional trade sanctions.
    Asset classes continue to trade favourably and commodities trade bid on expectations of massive US infrastructure spend. If current price action is telling us anything, it is that commodity currencies should continue to hold up well, even in the face of a continued USD uptrend.
    However, the commodity block remains intrinsically linked to the price of oil and with both OPEC and NON -OPEC member’s assurance to turn off the spigots, prices should rise. However, the fly in the ointment remains the shale producers, as the latest data from Baker Hughes reveals that the number of active US rigs drilling for oil climbed by 4 to 529 rigs this week. That marks the tenth weekly rise in a row.
    On the Diary, Tuesday’s domestic retail sales report and Wednesday’s quarterly ABS job vacancy data are the featured events on a relatively quiet local calendar, so look for the external factors to continue driving sentiment.
    CNH
    It has been a tortuous start to the year on the CNH trading desk as funding conditions continue to wrong foot market participants. Despite some semblance of order emerging, we should expect volatility to remain high. I also expect that the underlying Yuan depreciation pressures should return as fundamental reasons that are driving depreciation, such as capital outflows and concerns on Trump’s China policies, because they haven’t changed.
    Although the CNH moves have put traders on edge, the global impact is not in the same league as the turmoil created last year. Moreover, as history so often repeats itself in the Forex world, we should expect the Yuan to resume its course of depreciation post Trump’s inauguration and at latest, post the Lunar New Year.
    How to move forward and time a position entry is very tricky and open to much debate. While I suspect we are firmly entrenched in a longer-term USD bull rally, traders will tread lightly or remain sidelined in the CNH short trade, likely until “Tom Next” drops below the implied 10% level.
    Given prohibitive CNH funding costs, look for traders to continue expressing regional views via the USDSGD mainland proxy. Singapore Dollar volumes continue to surge as cool heads view opportunity at current levels.
    After a spate of Twitter tantrums directed at Tokyo by Donald Trump, senior Chinese officials have warned the US that Beijing is ready to retaliate if Donald Trump’s incoming administration imposes new tariffs. Let us hope we do not go down this road, as the last thing the Global Supply Chain and a recovering Global Economy needs is a reciprocal trade war between the market’s two biggest players. The Global economy cannot run without China-US trading winds blowing.
    China’s foreign-exchange reserves fell to their lowest level in nearly six years last month, falling $41.08 billion in December to $3.011 trillion, which marks the lowest level since March 2011. While the print was in line with market expectations, it none the less highlights the PBOC’s willingness to dip into the Reserve cookie jar, while maintaining an iron fist on capital controls in an attempt to support the Yuan.
    JPY
    USDJPY continues to be the prime mover in the G10 space as it is the favoured pair for traders to express their USD bias. However, recent price action is primarily news driven and due to heavy weighted long USD bias. The market has shown a gibbous response to data released. This bias leads me to believe the USDJPY could be extremely susceptible to weak US economic data over the short term. However, the long run paradigm continues to suggest that US fiscal infrastructure spend, coupled with tax reform, could provide sufficient tailwind effect to break the 120 level, for a possible test of 125.
    EM APAC
    Expect lots of racket in the local EM space as there is no escaping the stronger US dollar, due to policy divergence and while I think capital market growth differential will certainly favour the region, managing the foreign exchange exposure is another question.
    Global yield curves will continue to accelerate higher and omnipresent regional capital outflow will continue to be a major headache for local central banks.
    With the ever present possibility for increased US trade protectionism, it paints a less than positive outlook for local currencies.
    The regional whipping boy is still the Malaysian Ringgit. Other than relying on a wing and a prayer for higher oil prices, there seems to be no respite in sight as the currency remains Asia’s worst performer.
    Sydney Open v Fridays NY close
    EUR 1.0535-50 (1.0530)
    JPY 116.85-99 (117.02)
    GBP 1.2261-1.2315 (1.2283)
    CAD 1.3235-80 (1.3235)
    CHF 1.0150-80 (1.0178)
    AUD 0.7291-95 (0.7297)
    NZD 0.6954-89 (0.6957)

  5. #205

    FX 2017: EUR – Political Uncertainty And ECB's Dovish Tapering Continue To Weigh

    Subdued economic growth and unconventional easing measures resulted in EURUSD's third consecutive yearly decline, although the loss was greatly trimmed to about -3%, last year. EURGBP, however, jumped +16% as sterling slumped on concerns over British economic outlook after Brexit. Risk is to the downside for the single currency in 2017 as pressured by elevated political uncertainties and ECB's dovish tapering stance. Recent upside surprises on inflation data would not make ECB less dovish. Core inflation remained weak and should only improve gradually this year, not sufficient for the central bank to commit to tapering. A break below the 1.0463 low in March 2015 has paved the way for EURUSD to go further lower. We expect EURUSD to reach parity by 2Q17, probably after French election.
    Election Year Raises Political Risks: 2017 is an election year in Europe, marked by elections in France, Germany, the Netherlands, and possibly, Italy. Following a 'yes' vote in the Brexit referendum and a 'no' vote in the Italian referendum to reject the senate reform, the market has turned increasingly concerned that the rise of populist, anti-globalization sentiment would trigger another crisis in Europe. Such anxiety is not groundless. The key focus is on the French presidential elections in May. It is likely that Marine Le Pen from the far-right Front National party would become president. She pledged to hold a 'Frexit' referendum on French membership of the EU. As she suggested at a recent interview, France needs to'renegotiate with the EU because I want to see French sovereignty restored in France, supported by a referendum… I will announce that a referendum will be held in six months time. I will spend those six months going to the European Union and telling them: ‘I want the French people to regain at least their territorial sovereignty because I want to control the borders - they don't belong to you'. Le Pen, however, suggested that France should keep euro even after 'Frexit'.
    Meanwhile, polls of the Netherlands' general election, scheduled on March 15, suggested that the eurosceptic PVV party would get the biggest number of seats while falls short of a majority. Scheduled in September, Germany's election might see the far-right, eurosceptic AfD party win as much as 15-20% of seats in the lower house. The centrist Grand Coalition would likely continue but with a shrunk majority. Italy has already fallen into political turmoil since Prime Minister Matteo Renzi's defeat in the December constitutional referendum. The crisis is exacerbated by an electoral law known as' Italicum' which came into force in July. The law allows a party to form a majority single-party government if it wins a certain share of votes. If a party wins 40% of the popular vote, it will automatically be allocated 54% of the seats in the lower house. If no party achieves that benchmark, a second round would be held in which the two biggest parties participate. The winner of that second round would still get 54% of the seats in the lower house. The populist, eurosceptic Five Star Movement is running neck and neck in the opinion polls with Renzi's Democratic Party. Last month's referendum has, however, greatly increased the popularity of the former.
    ECB's Dovish Tapering
    At its December meeting, ECB announced to extend the program until December 2017 but the pace of asset purchases would slow to 60B euro per month from April 2017, compared with the current 80B euro. President Mario Draghi indicated that the "calibrations" reflected the "moderate but firming recovery of the euro area economy" and the "subdued underlying inflationary pressures". He maintained a dovish tone, noting that the members still expected risks to Eurozone's growth skewed to the downside. He affirmed that the new measures are not tapering and pledged that the program "goes until December 2017 or beyond, if necessary, and until we see a sustained rise in inflation". Draghi also noted that the move allows ECB to maintain a 'sustained presence' in the markets. In this sense, the reduction in pace of buying was way-out for ECB to continue QE amidst bond scarcity. Indeed, ECB made some change changes in the parameters of the QE with the ECB now allowed to buy government bonds which are yielding less than its deposit rate of -0.4%. Moreover, the securities lending program now accepts cash as collateral. A dovish ECB is in contrast with a more hawkish Fed which, as unveiled in the December minutes, sees accelerating pace of rate hike this year.
    Inflation Picking Up?
    Headline CPI in the Eurozone accelerated to +1.1% y/y in December, from +0.6% a month ago. Core CPI also picked up to +0.9% y/y from +0.8% in November. Energy inflation soared to +2.5% from -1.1%, whilst food, alcohol & tobacco inflation rose to +1.2% from +0.7%. Services inflation also climbed higher to +1.2% from +1.1%. In Germany, headline CPI more than doubled to +1.7% y/y in December. This came in better than expectation of a rise to +1.4%. Pleasant surprise in December inflation has once again brought about rhetoric of ECB rate hike from certain German officials. However, we not see improvement in inflation data a trigger for ECB's tapering, let alone rate hike. Not only does headline CPI remain far below ECB's target of' close to, but below, +2%', but core inflation also remains weak. Executive board member Benoît Cæuréat noted last month that the ECB is still awaiting 'signs that core inflation is on the rise and will clearly exceed +1%'. December's data shows that core CPI stayed below +1%. The underlying trend signals that it would only rise gradually this year and is expected to stay below +1% most of the year. Indeed, we see core inflation to undershoot ECB's forecasts of +1.1% in 2017 (followed by +1.4% in 2018 and +1.7% in 2019), a scenario that might lead the ECB to extend QE purchases in 2018.

  6. #206

    The Reflation Case Continues To Support Higher Bond Yields And Equity Markets

    Market movers today
    There are no big market movers today and markets this week will watch for comments from Fed members following the US employment report on Friday that showed the highest wage growth since 2009 (see Flash Comment US: Jobs report on the hawkish side for the Fed, 6 January 2017). The Fed's Lockhart (non-voter, neutral) speaks tonight at 18.30CET and on Friday Fed chair Janet Yellen is due to speak. The market is pricing two rate hikes from the Fed next year in line with our own forecast, but the risk is increasingly skewed towards three hikes given the tightening labour market.
    The rest of the week is very quiet on the data front with China inflation (Tuesday) and US retail sales (Friday) being the main releases. In Scandinavia there are no releases today and the focus is on inflation data due in Sweden, Norway and Denmark during the week.
    In today's global releases we look for solid German industrial production on the back of strong factory orders recently. We expect the euro Sentix index to rise slightly and project the euro unemployment rate to be unchanged at 9.8% for November.
    Selected market news
    The US employment report added to the data underpinning the US reflation case with the labour market tightening further and wage growth continuing to strengthen. This comes on top of other releases last week pointing to reflation (see Strategy: 2017 starts off where 2016 ended, 6 January 2017). The reflation case continues to support higher bond yields and equity markets.
    Over the weekend Chinese FX reserves for December showed a further decline of USD41bn to USD3.01trn. Outflows thus continued in China in December and this partly explains why the PBoC has taken further steps to limit outflows by forcing a stronger CNY in the early days of January using a sharp rise in offshore money market rates. There are signs of stabilisation in the CNY and CNH markets though. The overnight CNH money market rate came down to 14.05% from 61% on Friday.
    US-China tensions strengthened further over the weekend when Taiwan president Tsai Ing- Wen stopped in Houston to meet senior Republicans on her way to a visit with allies in Latin America (see Reuters). While she refrained from meeting representatives from the incoming administration, it is still seen as a provocation from the Chinese point of view.
    Further challenges on the geopolitical scene could come from North Korea this year. North Korea declared on Sunday that it could test-launch an interballistic missile at any time. The US Defense Secretary said on Sunday that North Korea's nuclear capabilities and missile programme constituted a ‘serious threat' and that it was prepared to shoot down a North Korean missile launch or test if it was seen to be threatening the US or its allies. With US-China relations deteriorating, China will likely be less willing to cooperate with the US in this area to contain the threat from North Korea.
    UK Prime Minister Theresa May repeated in a televised interview over the weekend that immigration and border control are key areas in the Brexit negotiations with EU.

  7. #207

    Brent and NYMEX are mixed in Asia

    Brent and NYMEX are mixed in Asia

    On Monday, crude prices were mixed in Asia, with market participants, lauding compliance with huge effort by OPEC as well as non-OPEC countries just to trim 1.8 million barrels per day from global crude markets, though noting a supply response from American shale drillers and also countries outside the pact.

    In New York, February delivery crude futures dropped 0.48%, hitting $53.73 a barrel. Additionally, in London, March delivery crude futures earned 0.12%, just to settle at $56.90 a barrel.

    In the week ahead, traders will be looking ahead to American economic reports, especially Friday’s retail sales figures for December. Moreover, traders will be monitoring an appearance by Fed Chair Janet Yellen on Thursday as well as speeches by a handful of other Fed representatives during the week and Trump’s press conference on Wednesday.

    The previous week, crude futures concluded moderately higher, logging their fourth weekly revenue in a row with market participants encouraged by clues that key crude producers will adhere to the pledge to curb crude production.

    [Only registered and activated users can see links. ]Important Forex News Daily.

  8. #208

    Greenback sits on payroll revenues

    Greenback sits on payroll revenues

    On Monday, the evergreen buck marked time in Asia after evident signs of wage pressure in the December American jobs report proved enough to raise Treasury yields, though with bulls wary of a setback following the previous week's wave of profit-taking.

    A holiday in Tokyo kept trading light, while the dollar index kept to 102.22, close to the middle of the previous week's range 101.30-103.82.

    The greenback was a fraction firmer on the Japanese yen at 117.30. It had already revived all the way from a 115.06 minimum on Friday, though remained short of the next key chart objective around 118.60.

    The common currency was steady at $1.0534, having ricocheted between $1.0339 and $1.0621 the previous week.

    By the way, there were lots of hints of inflationary pressure in Friday's mixed American payrolls report to back the case for more interest rate lifts and reverse a down move in yields and the greenback.

    The outlook for American rates might become a little clearer when Janet Yellen appears at a webcast town hall gathering with educators on Thursday.

    [Only registered and activated users can see links. ]Important Forex News Daily.

  9. #209

    Gold prices earn in Asia with Trump

    Gold prices earn in Asia with Trump

    On Monday, gold soared in Asia, as market participants waited for a lineup of Fed speakers this week as well as the incoming US president just to set the overall tone and also financial markets in Japan shut for a holiday.

    February delivery gold futures soared 0.21%, hitting $1,175.85 per troy ounce in New York. Copper futures ascended 0.08%, trading at $2.544 a pound.

    The previous week, gold dropped on Friday, retreating from last sessions one-month peaks, as the greenback managed to surge against a currency basket after American jobs data disclosed a slowdown in hiring in December, though there was a pickup in wage growth.

    Aside from that the major US bank has already indicated that three quarter-percentage-point interest rate surges appear to be on the cards for this year.

    Market experts point out that higher rates normally boost the major American currency by simply making the given asset more attractive to yield-seeking traders.

    [Only registered and activated users can see links. ]Important Forex News Daily.

  10. #210

    Improved Fundamentals in ST Insulating Euro from LT Political Concerns

    EUR/USD gyrated quite a bit to start the year, but only settled +0.14% higher on the week when all was said and done (HL range 1.0341-1.0620).

    - Quiet economic calendar on both sides of the Atlantic keeps attention on US political developments surrounding President-elect Trump.

    It was an exciting, but perhaps disappointing start to 2017 for EUR/USD. Despite setting a fresh 52-week low on January 3 at 1.0342, EUR/USD traded above 1.0600 by Friday; the wide range in prices through the first week of January only resulted in a meager +0.14% gain for the pair.

    While early-week US Dollar weakness was widespread (profit taking on the Trump reflation trade, generally), the Euro itself was mixed amongst the rest of the major currencies. With commodity prices running up, EUR/CAD (-1.40%) and EUR/AUD (-1.15%) slipped back; EUR/GBP (+0.56%) edged higher on renewed Brexit concerns.

    In the days ahead, amid a rather quiet economic docket for the Euro – November Euro-Zone Unemployment on Monday, 2016 German GDP and November Euro-Zone Industrial Production on Thursday are the highlights – more of the sideways churn that the Euro has seen in recent weeks seems very likely. Overarching political concerns will linger, especially about elections in the Netherlands, France, Germany, and Italy (likely at the end of the year, but no later than May 23, 2018). Political concerns for the Euro, are longer-term in nature and will simmer in the background for a while (certainly beyond the forecast horizon of this piece), a burden that will be more apparent at some times and less apparent at others.

    In turn, a look at some of the Euro’s near-term fundamentals would be appropriate to help calibrate the short-term view. Starting with the ECB, markets believe the central bank is done easing, and by the end of 2017, will be closer to a rate hike (19.5% chance at the December 2017 meeting) than a rate cut (6.0%).

    In the past, while the lack of dovish pricing represented opportunity for the ECB to surprise the market, this situation is now in a different context: in prior occurrences, energy prices were still heading lower and inflation expectations were in a downtrend. Yet now, energy prices are rising (Brent Oil is up from $54.33 to $57.21 over the past four-weeks) and inflation expectations (5-year, 5-year inflation swap forwards) are pushing higher (1.763% at the end of last week from 1.725% four-weeks ago).

    Aside from markets feeling that Euro-Zone inflation is heading higher – which is implicitly bullish for the Euro – economic data has been improving steadily in recent weeks, beyond consensus expectations by a wide margin. The Euro-Zone Citi Economic Surprise Index finished last week at +71.1, up from +62.6 on December 9.

    In the short-term, these are all reasons for markets to be less bearish on the Euro, despite the longer-term political concerns that will flare up from time-to-time throughout the year. This counterbalance leaves the Euro at the behest of significant movements in the other major currencies, like: whether or not the Trump reflation trade restarts after the surprising wage data in the latest US NFP report (EUR/USD); if markets will lose faith in Theresa May’s government and reprice a ‘hard Brexit’ (EUR/GBP); or if weakness in the Chinese Yuan becomes a forbearer of weakness in the Chinese economy, resulting in collateral damage to China’s largest regional trading partners like Australia and New Zealand (EUR/AUD and EUR/NZD). –CV

    [Only registered and activated users can see links. ]Important Forex News Daily.

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