FX Daily Strategy: N America, Aug 13

US CPI wasn’t the most thrilling data release but, by virtue of that, was dull enough to still see US yields drift off a little. It won’t have settled any big debates or changed many opinions though, and we note some details like ‘lodging away from home’ perhaps dampening the last couple of outcomes. The prints were ‘ordinary’ enough to not make the case for Fed action (and multiple actions) any more urgent at least.

That said, trend does remain higher than it should be, across many variants, and the current prints are occurring during the ‘window’ when some energy relief was in play - relief that has neither been extended nor currently looking that secure (with Iran still anything but in the clear and increasing warnings over strategic reserves, as well as refining). There's more data to come before the Sep meeting and so no great appetite to shift odds greatly at this point.

While US2s did drift off, the dollar has proved a little more sticky - a case of what doesn't go down goes back up for USD/JPY where the corrective mood and overall low vol, firmer equity backdrop is still keeping things summer-carry minded at present. Iran deadlock is still also offering some dollar support even if, ironically, being ignored at the same time on the risk side of the equation. 

Where there is still a bit more life in play is back in metals and, as previously flagged as a good bet, in precious metals especially. Silver for instance has made another 10% upside and, while it wont be a straight line, still has trend-up action in place at the moment, towards the next 71 ½ ~ break area.

That metals backdrop isn’t doing AUD any harm at all at present either, outright or especially back again on the cross. The AUD/NZD break above the previous noted 1.2~ level did see a decent pop to 120 ½ and just above with 1.2100/30 area and low of 3 July next level up and stiffer resistance in terms of capping. Weak NZ inflation expectations data also went with the grain on the cross overnight. 

Is the wider market currently complacent in terms of its wider risk tone and volatility? Almost certainly yes, But in the near-term, the trend is the trend. It is worth keeping in mind though that this is why the precious trend is the ‘purer’ expression in that it currently captures both the current risk meltup flows/sentiment and the risk and currency diversification flows/sentiment too.

Turning to Thursday, the UK defied the more bearish estimates as the heatwave ultimately proved a mixed input on this occasion, in tandem with the World Cup. Still, since the Spring pickup, the last three months have still stagnated at 0.05% 3mma, so the net picture is still recently one of lack of momentum. The BoE is seen sitting on its hand through the summer and autumn to see how geopolitics, and other supply side issues play out, before reviewing whether their 'more downside risks to growth than upside to inflation' view prevails. 

On the charts, on EUR/GBP, a close above 0.8560 is needed to stabilise price action and give way to consolidation within congestion beneath the 0.8585 monthly high of 30 July.

Norge Bank is the other main event of the morning. As expected, it left rates on hold, but also sounded a somewhat less hawkish note in noting the desire to avoid excessively restrictive policy and acknowledging that inflation had undershot expectations. While reserving judgement on whether this materially changes the outlook, and so need for further policy action may remain, the tone shift did help lift EUR/NOK. Ultimately, NOK and the Norges outlook ultimately hang on the broader outlook for geopolitics and oil going forward, although we still view it as ahead of the curve and likely having scope to ease next year, long-term global and supply outlook dependent. 

In the US, the inflation focus moves on next to PPI. Last month, the reaction to still firm PPI did temper the reaction to the CPI recede. Weekly initial claims are due, as usual, while Fed hawk Hammack and moderate Barkin will also speak.