EUR/USD, USD/JPY, DXY flows: ECB, US PPI, then CPI; mkt wary of hawkish risks from both sides
ECB meeting, then PPI followed by CPI from the US
Mkt wary of 'hawkish' surprises from both sides, could see some chop
For the ECB, main interest will be whether recent US-Iran developments and energy complex pressure hardens the neutral tone
Largely sideways trade in Asia awaiting the key event risk. UST yields still remain at and around the highs, only a slight pullback overnight, after the buyback announcement fell short of the flashier expectations ($6bn vs some of the more ambitious expectations out there for a splashy move up to $10bn).
EUR/USD sits towards the top side of the 1.16-1650 recent band heading into today’s risk event with both the ECB and US inflation data kicking off with PPI. Recent heightened US-Iran exchanges and ongoing pressure in the energy complex has started to influence some thoughts into the ECB meeting that it could be a little more hawkish (and so euro positive) regarding adverse scenario risks given this backdrop, rather than what might have been assumed to be more deadpan delivery to leave itself flexibility on the next decision (and some sell the fact). Presser and ECB quarterly forecasts will be the focal point coming out of the universally expected hike.
On the US side, for PPI we expect an increase of 0.4% overall with 0.3% gains in both core rates, ex food and energy and ex food, energy and trade. That would be broadly in line with expectations though keeps focus into tomorrow’s more critical CPI data skewed towards possible upside (we see upside risks to core there at 0.3%). The approach of US CPI may tend to avoid any lasting reaction to the ECB stretching too far unless it makes a big impression. Quite a wide spread of EUR/USD options today and tomorrow with 1.16 and 1.1650 predominating today and lighter expiries with a downside skew tomorrow.