EURUSD - Will Mario Signal Taper?

Market Drivers June 14, 2018
AU jobs come in soft
Uk Retail Sales beat big
Nikkei -0.99% Dax -0.33%
Oil $66/bbl
Gold $1302/oz.
Bitcoin $6470

Europe and Asia:
AUD AU Labor 12K vs. 18k
GBP UK Retail Sales 1.3% vs. 0.5%

North America:
EUR ECB Presser 8:30
USD Retail Sales 8:30

The dollar was down across the board with exception of the Aussie, in Asian and early European trading as the positive glow of FOMC rate hike faded and US yields once again wilted ahead of the 3.00% barrier.

Despite Fed’s hawkish rhetoric, the markets continue to doubt the tightening bias of the Fed with the yield curve flattening at almost every duration. The benchmark 10 year was down on the day at 2.95% as it struggles to reach the psychologically key 3.00% level. It’s difficult to say if the skew on the long end is simply a function of hunting for yield from foreign investors or a true bet on the slowdown of the US economy but with Fed funds rate at 2% and 10 year at 3% there is very little reason to assume duration risk in the market for now and dollar bulls are clearly waiting for more economic evidence to prove the Fed right.

Meanwhile elsewhere, the labor data from Australia missed its mark printing at 12K vs. 18K eyed. Worse still, was the miss on full-time jobs which came in at -20.6K versus 32.7K then month prior. Aussie gave up the .7600 figure and was the sole loser against the buck in overnight trade. The pair is feeling the one-two punch combination of weaker data and interest rate compression against the dollar as the pair now goes even deeper negative carry.

In the UK the Retail Sales, boosted by good weather, the Royal wedding, and World Cup rebounded strongly coming in at 1.3% versus 0.5% eyed. The news was a boost for cable which shot up on the announcement and traded to a high of 1.3447. The pair has a decent chance of running through the 1.3500 barrier over the next few days as long as it doesn’t face a fresh raft of negative Brexit news.

In the US the Retail Sales data could help the buck as the day proceeds. The market is looking for a rise of 0.5% from 0.3% the month prior which would be in sync with Fed’s bullish view on the US economy and help affirm the bull’s thesis that better growth is finally translating into better spending. USDJPY has been wallowing below 110.00 most of the night, but a string pop in retail sales could send the pair back above 110.50.

Finally, the focus of the day will the ECB meeting and presser due at 12:30 GMT. The market will want to see if Mr. Draghi provides any guidance as the to the taper of QE by September. The euro has been well bid ahead of the event precisely because the conventional wisdom is that ECB does not want to delay normalization despite troubles in Italy as the spread in short-term rates between Europe and US is widening out at ever-increasing rate. If Mr. Draghi suggests anything to the contrary and offers a more dovish tone – the pair could quickly sink to 1.1600 and perhaps even 1.1500 on massive disappointment.

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