Dollar Slides Back as Euro Hits 3 Week Highs

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Market Drivers April 20, 2017
NZD inflation beats
Euro at 3 week highs
Nikkei -0.02% Dax -0.17%
Oil $51/bbl
Gold $1280/oz.

Europe and Asia:
NZD CPI 2.20% vs. 2.00%
EUR GE PPI 3.1% vs. 3.2%

North America:
USD Philly Fed 8:30
USD Weekly Jobless 8:30

The euro hit three-week highs against the buck in quiet Asian and early European trade as markets appeared sanguine about the upcoming French election this Sunday.

The EURUSD broke above the 1.0750 mark in broad anti-dollar flows with the greenback lower against most of the majors. There is little on the docket today as far data goes with only the German CPI which once again showed that inflation remains muted, but the market is becoming more confident about the French elections as polls remain consistent in stating that Marie Le Pen would lose in double digits to any of her three rivals in 2nd round voting.

Despite the generally positive tone of trade, the risk in the pair remains as Ms. Le Pen could always surprise the pundits by harnessing a much larger vote total than expected and putting the final outcome in doubt. In addition, the Eurozone will have to contend with what appears to be a very fractious Brexit and that is likely to increase pressure on the pair as well. For now, however, it remains well bid and could probe the 1.0800 figure by end of day.

Elsewhere, the kiwi got a boost today from much hotter than expected CPI data which came in at 2.20% versus 2.0% eyed. This was a large jump from the prior reading of 1.30% and it helped to fuel a rally in the pair that took it all the way to .7050 in late Asian session trade. But the gains did not last as the kiwi started to drift lower as the open of European dealing dropping to .7025. Part of the problem is that much of the CPI gains were driven by one-time increases in tobacco taxes and oil gains and are unlikely to persist. The RBNZ favorite measure of inflation remained consistent at 1.5%.

Still, with dairy price climbing and with inflation data stable at the very least, the prospect of further RBNZ rate cuts looks remote for now. The pair has declined significantly since the start of the year and now likely to hold support near the .7000 and could trade towards .7200 in the near term horizon especially of the Fed stands down in June.

In North America today only weekly jobless claims and Philly Fed are on the schedule and neither is likely to impact trading. At 13:15 NY time Treasury Secretary Steve Mnuchin is due to speak and his comments could have some weight especially if he discusses the timetable for tax reform which one of the key catalysts for the dollar rally. For now, however, the greenback remains on the back foot as anti-dollar sentiment builds in the market on the belief that US growth has slowed.

Boris Schlossberg
Managing Director

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