The euro and franc continued to feed off the Greenback’s weakness in the past week. Can this phenomenon carry on?
Preliminary CPI readings (starting Aug. 30)
The spotlight could return to inflation for the euro this week as traders are still trying to get a feel of when the ECB might start hiking interest rates.
We’ll get a first glimpse into how price levels are looking for the region’s top economies, namely Germany, France and Spain. The preliminary German CPI is due on Thursday’s London session and might show a slower pickup in price levels of 0.2% for August versus the earlier 0.3% in July.
Spain will also release its flash CPI on the same day and likely print no change in the 2.2% year-over-year figure. The French preliminary CPI is due on August 31 and might indicate a 0.5% rebound after the earlier 0.1% dip.
Before the week comes to a close, the region’s flash headline and core CPI readings are due, allowing traders to project if the ECB’s targets will get hit soon. No changes are expected for both reports from the July readings, though.
Last Week’s Price Review
The euro is currently the one currency to rule them all (as of 1 pm GMT). The Swissy is not far behind, though.
The euro had a wobbly start but began to firm up at around 11:00 am GMT when the Greenback began to encounter sellers.
The Greenback’s weakness was generally attributed to Trump talking smack about the Fed’s rate hikes.
As for some deets a Wall Street Journal (WSJ) report claimed that Trump was “unhappy” with the Fed’s recent rate hikes. The report also claimed that Trump has “raised doubts about the man he placed in charge of the institution” since Trump was expecting that Fed Chair Powell would support “cheap money” as Trump puts it.
As for the Reuters interview, well, that basically confirmed the WSJ report since Trump explicitly stated that he’s “not thrilled” that the Fed has been hiking rates under Powell’s leadership.
However, I just wanna point out that the Greenback began to weaken (and the euro began to strengthen) before either reports began to make the rounds. No clear reason why, but it’s possible that last week’s theme was still playing out, namely unwinding of safe-haven bets on the U.S. dollar ahead of the trade talks between the U.S. and China, with the euro feeding off the Greenback’s weakness.
In any case, the Greenback continued to weaken on Tuesday, with Trump’s criticism against the Fed still being cited as the reason by market analysts, so the euro enjoyed another positive day. The euro did have a harder time against the pound and the Swissy, though.
Anyhow, the same theme continued to play out on Wednesday since the euro continued to strengthen as the Greenback continued to take hits.
Trump’s criticism of the Fed likely continued to weigh on the Greenback, but jitters ahead of the FOMC minutes may have also been a drag. Also, Cohen entering a plea deal likely weighed on the Greenback as well since Cohen referred to an “unnamed candidate” that sounded suspiciously like Trump.
However, another reason to kick the Greenback lower emerged when Lanny Davis, Michael Cohen’s lawyer, began making the media rounds while basically calling Trump a criminal.
— Morning Joe (@Morning_Joe) August 22, 2018
"Would Michael Cohen seek a pardon from the President of the United States for any of this?" CNN's John Berman asks.
"The answer is definitively no," Lanny Davis says, claiming that Cohen has questioned Trump's suitability for the presidency and "loyalty to our country" pic.twitter.com/3aHDZ1x47O
— CNN Politics (@CNNPolitics) August 22, 2018
The Greenback eventually found support when Wednesday’s U.S. session rolled around, though, likely because of short-covering ahead of the FOMC minutes, so the euro’s rally stalled as well.
Greenback bulls eventually got revived after the FOMC minutes delivered a hawkish overall message, which caused the euro to stumble a bit.
Fortunately for the euro, fresh buyers were enticed to jump in during Thursday’s London session. And as noted in Thursday’s London session recap, demand for the euro was apparently triggered by Bundesbank President and ECB Member Jens Weidmann hawkish comments and the Euro Zone’s net positive PMI reports.
The Greenback resumed its rally during the U.S. session, so the euro stumbled again. Buying pressure on the euro was ever present, though, since most EUR pairs eventually recovered and even began to tilt to the upside. And it likely helped that the Greenback turned south again come Friday.
As a side note, the ECB’s meeting minutes were released on Thursday, but as pointed out in Thursday’s London session recap, the minutes didn’t really provide any surprises. However, the minutes did show that ECB Overlord Draghi’s upbeat outlook on the Euro Zone economy is a view that’s shared by other ECB officials.
The Swiss Franc
The Swissy’s winning streak was ended last week, but it’s turning in another good run this week since it’s currently in second place after the euro (as of 1 pm GMT).
EUR and CHF pairs actually had very similar price action. However, the euro either got an extra boost from Greenback weakness on Friday or the Swissy was encountering some sellers because of the risk-on vibes on Friday since the only reason the euro’s winning out is that the Swissy didn’t fare as well on Friday.