Will Yellen Crush The Dollar?

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Market Drivers for April 15 2014

UK CPI in line

EUR ZEW misses a bit on Ukraine worries

Nikkei .62% Europe -.43%

Oil $102/bbl

Gold $1310/oz.

Europe and Asia:

GBP CPI 1.5% vs. 1.5%

EUR ZEW 43.2 vs. 46.3

North America:


USD Empire 8:30 AM

Cable saw some early volatility in morning London trade today dipping as low as 1.6660 ahead of the UK inflation data, as traders feared a low print. But the CPI numbers came in line at 1.5% while the PPI input data did record a lower reading of -0.6% versus -0.2% eyed. Overall UK inflation showed its smallest gains since 2009 suggesting that price pressures in the UK economy remain tame despite a highly accomodative stance by the BOE.

Cable was under pressure ahead of the release as markets anticipated an even lower reading, but the pair popped back above the 1.6700 figure on a relief rally. Although cable remains near its yearly highs, the price action in the pair has been lackluster as of late especially after it failed to take out the recent swing highs above the 1.6800 level.

The currency markets remain uncertain as to the speed with which the BoE will begin to tighten monetary policy in the foreseeable future. The low price level readings have taken pressure off the MPC to act quickly as the UK recovery appears, at least for now, to have the best of both worlds – low inflation and steady growth.

Tomorrow the market will get a look at the UK labor statistics with consensus view anticipating another banner claimant count reduction number of -30K. A strong print on the labor data would provide a boost to cable bulls and could set the ground for another rally towards the 1.6800 figure.

Meanwhile in Europe the ZEW survey data came in just slightly softer than expected at 43.2 versus 46.3 eyed as worries over the Ukraine crisis weighed slightly on sentiment. However current conditions printed at 61.2 versus 60.7 indicating the economy continues to perform at a steady pace.

The EUR/USD has been slightly weaker throughout most of the night dipping below the 1.3800 level, but the pair remains remarkably robust in the face of all the jawboning it received over the weekend. After numerous comments from ECB officials including President Draghi the euro has only managed to fall 50 points suggesting that demand for unit remains strong.

In North America today the market will get a look at the CPI and Empire data, but the highlight of the session may be the speech by Janet Yellen. who is scheduled to speak at the Atlanta Fed’s annual Stone Mountain conference. If Ms. Yellen continues to downplay the prospect of interest rate hikes in 2015, the greenback may see further weakness with EUR/USD possibly rebounding to 1.3850 while cable could recapture 1,6750.

Boris Schlossberg
Managing Director

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