Fundamental View
Friday saw a continuation of the move towards further dollar strength. Both the EURUSD and the GBPUSD make new lows as traders moved to price in rate hikes ahead of the FOMC meeting this week. This is not so much a pricing in of the hikes themselves but the preparation the Fed are likely performing to line up a hike later this year. Many are calling for the removal of the “patient” language to give the Fed more flexibility to remain data-responsive. Equities in the US were also on the back foot, the S&P 500 finishing down 0.61% on the session. This was exacerbated by some misses on headline data; PPI was softer than expected and the University of Michigan Confidence was the most severe of the pair. Quantitative Easing in the Euro-area kept bourses elevated, widening the gap between EU and US stocks with the help of stimulus. Over the weekend we had comments from Chinese Premier Li stating that “China could intervene if economic growth breaks the lower bound.” This assisted Asian bourses to lift in Asian session trading this morning, setting up a slightly bullish tone for the session ahead.
Today’s View
This morning was fairly light on the data calendar with only a grind higher in equities overnight. This is likely to continue going into Wednesday as traders will be avoiding committing to positions without certainty of the macro-geography. With a potential acceleration in Rate-hike rhetoric we also recommend that traders remain conservative, adopting a “baby-pips” outlook to their trades. Today we have some data to look forward to; we have Empire Manufacturing, likely to be flat due to a lack of weather. Industrial production and NAHB Housing are also due, with 0.3% expected for Industrial Production and 57 for the Housing Index. Although we have these releases the majority of movement on the back of these will be short-lived and are unlikely to be game-changers, provided their releases are close enough to the outer-bounds of the range of estimates.
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