Big developments this week in the UK and Europe

Outlook

The big developments this week are in the UK and Europe. On Wednesday we get the UK inflation report, assumed to be the key to the first rate hike. At a guess, Carney is not in a hurry for both economic reasons and because a soft pound is not a bad thing. On Thursday we get the Q2 GDP first estimate from Eurostat, expected up a measly 0.1% after 0.2% in Q1, although it could be zero or even negative, depending on the German numbers. The OECD, among oth-ers, sees a Q2 contraction in Germany on a notable loss of momentum. But the OECD leading indica-tors for France and Italy point to better growth, although they have been doing that for some time with-out the better growth materializing. Conventional wisdom has it that “Europe closes for August,” but we find that over the years, August can be a big month for currencies.

We get job openings/turnover (JOLTS) tomorrow and retail sales on Wednesday. We imagine geopoliti-cal developments and possibly a comment or two from the Fed will have more influence than US data. This is one of those times when we think the absence of big data means the chart will rule, and the chart shows a pullback in the dollar rally. It’s very hard to trade and going against the primary trend is always tricky, but the lesson remains not to trust a dollar rally for long.