FX Disperses Every Which Way

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Market Drivers February 22, 2017
UK GDP misses
IFO improves
Nikkei -0.01% Dax 0.10%
Oil $54/bbl
Gold $1238/oz.

Europe and Asia:
EUR GE IFO 111 vs. 109.6
GBP UK GDP 0.7% vs. 0.6%
GBP UK Business Investment -1.0% vs. 0.0%

North America:
CAD Retail Sales 8:30
USD Existing Home Sales 10:00

Major pairs were mixed in haphazard FX dealing during Asian and London trade today with euro lower, cable mixed and the dollar losing ground against the yen as each followed its own story. Even the commodity dollars saw a large degree of dispersion with Aussie and kiwi holding bid while loonie was sharply lower.

The EUR/USD continued its slide dipping below the 1,0500 figure in mid morning European trade despite the fact that data was once again positive. The IFO survey printed at 111 versus 109.6 as sentiment in the German corporate sector remained elevated at near multilevel highs. The pair however, continues to trade on political concerns as populist support in both Netherlands and France remains steady at 25%.

In UK the GDP data was mixed with 2nd reading of GDP coming in at 0,7% versus 0.6% forecast, but Business Investment falling sharply -1.0% from 0,0% forecast. Cable rose in anticipation of the data breaking above the 1,2500 figure in Asia but the gave all the gains back in post news reaction trading to a low of 1.2436 before finding support.

Perhaps most surprising of all was the the price action in USDJPY which sold off sharply from its highs of 113.70 to drop to a low of 112.95. The weakening in US yields did not help but the reaction in the pair still looked overdone given the hawkish talk from Cleveland Fed President Meister on business media outlets.

The Fed appears to be quite serious about hiking rates 3 times this year with various Fed officials repeatedly warning that they are considering the possibility, yet markets are attaching only a 33% probability to the prospect of a March hike and that sentiment is being reflected in USD/JPY flows which has been under selling pressure for most of this month.

Today the market will get a look at the FOMC minutes which could confirm this hawkish bias and put the bid back into the pair. For now it is simply marking time, trapped in a 112.50 -114.50 range but the bearish bias in trade since the start of the month suggests that markets are highly skeptical of any aggressive Fed tightening for the time being.

Boris Schlossberg
Managing Director

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