January 25, 2018. Draghi to address EUR strength (as the US does its best to weaken USD)

–Going into today’s ECB meeting, Draghi faces the euro at a new high (with gold and oil also at new highs this morning).  Though the trade-weighted rise in the euro hasn’t been as pronounced, strength in the currency could undermine recent gains and stall already low inflation, so Draghi needs to gently talk it down.  On a related note, the chart below shows the dollar index, which closed at a new low following Mnuchin’s comments yesterday.  As is shown, the 50% retrace from the 2014 low to post-election high was an initial level of support (91.36) and I would expect the 61.8% level of 88.42 to act as support now.

–US yields pushed higher again yesterday, with tens up 3 bps to 265.  Seven year auction today.  Treasuries found some support yesterday as talk of month-end rebalancing following January’s spectacular gains pushed stocks lower.  However, those concerns were brushed away by the end of the day and ESH is again higher this morning.  (Talk of $70 billion rebalance).

–With Trump in Davos, trade frictions are heightened.  China’s Commerce Ministry says it will take appropriate actions against unilateral moves, but hopes to handle frictions with the US in a proper manner.  Worth a mention is a decline in S Korea Q4 GDP, mostly as a result of weak exports.  N Korea has been on the back burner recently, but a new flare up may be closer than it currently appears.  US news includes New Home Sales and LEI, expected +0.5.

Posted on January 25, 2018 at 5:25 am by alexmanzara · Permalink
In: Eurodollar Options

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