In short, inflation came in slightly above expectations at 0.4% YoY (vs. 0.3% expected), however it didn’t have much of an impact on the Euro. EUR/USD has been pretty rangy for the past couple of weeks, oscillating between 1.2875 and 1.3000. We see sellers at 1.2975-80, 1.3000 and 1.3025.
We believe that any bounce back above 1.3050 could be considered as a new opportunity to short the pair. Next target remains at 1.2800, greedy traders will target the 1.2750 retracement (9 July 2013).
We went short EUR/GBP at 0.8030 last week as we believe the pound will ‘recover’ slightly from its losses. Earlier this morning, the ONS figures showed that the number of people claiming Jobseeker’s Allowance in August fell by 37.2K (vs 30K expected), and the unemployment rate fell to 6.2% (vs 6.3% expected), its lowest level since October 2008. In addition, average earnings (ex bonus), the BoE’s new focus, edged up 0.1% to 0.7% in July and still stands much lower than the rate of inflation (CPI came in at 1.5% YoY in August).
The BoE minutes [of MPC Sep 3-4 meeting] showed once again that two policymakers – Ian McCafferty and Martin Wheale – voted to raise interest rates [by 0.25%] this month, leaving the central bank divided (7-2) for the second consecutive time. The implied rate of March15 Short Sterling futures contract (white line) is trading 8bps higher from last week’s low, bringing the value of the British pound with him (see Cable in green line).
On the top of that, the pound benefitted from 3 opinion polls suggesting that 52% of Scots will vote ‘No’ to independence…
Standard Bank on T-LTROs: The market expects the first TLTRO tomorrow to generate around EUR175bn of demand from euro zone banks.