Traders are not ready to give up on inflation

EUR USD (1.2850)
Another set of inflation figures, for which the market was obviously ill-prepared, came courtesy of the US Bureau of Labor Statistics yesterday. The Tuesday’s PPI number had already caused some consternation: some didn’t believe it, some thought that it might have been manipulated for political gain; many simply ignored the headline number and sifted the details for inflationary nuggets. But nobody was ready to revise their prediction for consumer prices because the historical in-month correlation was so poor. As a result, the CPI release had the same impact as the PPI on the previous day. But even now, analysts are not ready to give up the fight. The PCE deflator is anyway the Fed’s preferred measure of inflation, retorted one commentator in an effort to devalue the last two figures. And, don’t forget, there is still another set of PPI and CPI numbers to come before the FOMC meets again.

That market participants are not ready to give up on inflation is probably more pertinent for the bond market than for the euro. The stops on any long dollar positions were probably hit already and the single-currency still trades the same essentially 200-pip range that it has held for the last there weeks. Good near-term support is likely at 1.2785 as leftover positions from yesterday try to square up. To the upside, only above 1.2925 will we get the indication that the longterm sellers from last week have retreated.

USD JPY (115.65)
A further decline in the dollar has left it barely above its best near-term support – 115.45. Together with the recent weakness have come reasons why it must be so – this time traders have highlighted the increasing preference among Japanese retail investors for domestic investments. Once again, market participants reveal an unusual flexibility in their opinions. This suggests that their commitments are low and that their reference points are nearby. Thus, although a violation of the key support would open the door to a 200-pip slide, there is no reason to believe that this would be particularly dynamic as there are few wrong positions to be squeezed. To the upside, the initial hurdles are now at 116.10 and at 117.35.

EUR JPY (148.60)
A fresh overnight high and increasingly shallow corrections means that the nearby potential is now to 149.50. One can reckon with support on dips already at 148.10/20.

GBP USD (1.8975)
As suspected, the Pound underperformed during the latest bout of dollar weakness. The minutes from the latest MPC meeting and the diminished prospect of more UK rate hikes meant that some of the recent dipbuyers unloaded their positions even earlier than the 1.9050 level mentioned in the last report. Only once this barrier is overtaken will we call an end to the corrective phase. In the meantime, further selling could push prices modestly lower again. Below 1.8885, prices would slide to as low as 1.8755 (critical).

AUD USD (0.7670)
Follow the surpass of the 0.7655 supply point, prices rallied all the way back to 0.7700 yesterday. We already look for additional near-term gains to 0.7740. To the downside Supports are now noted at the break point (0.7655) and at 0.7590. The latter should now be treated as critical.