In FX Risk-on is On

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Market Drivers June 11, 2019
UK labor data beats
Nikkei 0.33% Dax 1.12%
Oil $53/bbl
Gold $1321/oz.

Europe and Asia:
GBP UK Average Earnings 3.1% vs. 2.9%
GBP UK Claimant Count 23.2K vs. 12.3K

North America:
USD PPI 8:30
USD Economic Optimism 10:00

Much better risk inflows supported by higher equities in both Asia and Europe helped keep USDJPY bid with the pair hitting session highs just below the 108.70 level ahead of the New York open.

President Trump continued to make positive remarks on trade looking for a meeting with President Xi at the G-20 summit at the end of the month. As we noted yesterday, “If the past actions have proven anything, it is that Trump loves to resolve the crisis he creates for dramatic effect. With G-20 meeting coming up at the end of the month, the US administration may begin to offer more soothing rhetoric in hopes of stoking market expectations of progress on the trade front, all of which could prove more positive for risk and push USDJPY back above 109.00 as the week proceeds.“

With US 10 year inching above 2.17% the bond markets are starting to respond to this scenario as the risk off flows begin to seep out of Treasuries. If sentiment continues to hold for the rest of the day USDJPY could try to run the stops at 109.00 as early as today.

Meanwhile, in the UK, better than expected labor numbers which saw average earnings rise at a healthy 3.1% rate versus 2.9% eyed helped cable to retake the 1.2700 figure as the labor market remains surprisingly robust amidst the mayhem in the business sector due to Brexit. The upside surprise in wages should be a boon for sterling longs as it indicates that consumer demand should remain stable averting the risk of full-on recession in the UK. Cable rose to 1.2723 in morning London dealing and could test 1.2750 as the day proceeds.

Finally, the US eco calendar only carries PPI data which is not likely to be market moving unless it prints negative – which is unlikely. Core PPI is actually projected to rise by 0.2% from 0.1% the period past, making the argument for a Fed rate cut even more difficult to make. If the numbers is hotter than consensus it will only add to the upside pressure in US yields and USDJPY as the day progresses.

Boris Schlossberg
Managing Director

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