EUR/USD traders today drew an example from yesterday’s action in EUR/GBP. Summer trading conditions, an empty eco calendar and the weekend ahead made them reduce dollar long positions after the August rally stranded into EUR/USD 1.1704 resistance this week. Moving above the intraweek high of EUR/USD 1.1750 even caused a slight acceleration higher towards 1.1765. We stress that this move is technical in nature with no reason whatsoever to suddenly play the single currency card. EUR/USD 1.1769 is final intermediate resistance before a more profound move higher in the range and a return north of 1.18. A similar technically inspired move in EUR/GBP heads into its second day with EUR/GBP taking out the 0.85 handle.
Core bonds trade listless with US Treasuries slightly outperforming German Bunds. As is the case on FX markets, the move can be seen as somewhat of a reversal of the August US Treasuries’ sell-off. Especially since the mid-month refinancing operation, including 10y Note and 30y Bond sales, went well. US yields lose up to 2.3 bps (10-yr) in a daily perspective. The German yield curve flattens with yield changes ranging between +0.8 bps (2-yr) and -0.4 bps (30-yr). 10-yr yield spread changes vs Germany widen by 1 bp. Stock markets continue to profit from the low volatility environment with European and US indices adding to their winning strike. They both add up to 0.5% with yet another all-time high for the S&P 500 after the US opening bell.
Next week’s highlights include US retail sales (Tuesday), minutes of the July FOCM meeting (Wednesday), first indications on Chinese growth at the start of Q3 (Monday) and EMU Q2 GDP numbers (Tuesday). The Reserve Bank of New Zealand (Wednesday; see below) and Norges Bank (Thursday; preparing September hike?) hold policy meetings.
The Polish economy has extended its strong rebound from the first quarter by growing 1.9% QoQ in the second. This result translates into 10.9% year-on-year growth. While the GDP detail structure has not been released yet, it is quite likely that annual GDP growth will be visibly above 5%, which is also above the NBP growth (July) forecast. Obviously, a debate about a start of a new hiking cycle, which has begun after the (high) July inflation figures, might only intensify among Polish rate-setters. Polish central banker Kropiwnicki today said that he would support a 15 bps rate hike in November when the bank publishes its updated macroeconomic forecasts, assuming the outlook for economic growth is good. The zloty didn’t respond to the data. EUR/PLN settles around 4.5750 after the Polish currency showed some weakness this week related to the lower house vote in favour of a controversial media bill which wants to exclude non EEA companies from holding stakes in Polish broadcasters.
Swedish inflation accelerated more than expected in July rising by 0.3% M/M and 1.7% Y/Y for the CPIF gauge (consumer price index with a fixed rate). The underlying core CPIF, excluding energy decelerated to only 0.5% Y/Y which was the lowest outcome since 2014 and backs the Swedish central bank’s cautious outlook. The Swedish krone was unnerved by the inflation numbers, treading water around EUR/SEK 10.20.