FX Update: EU Green Bonds, US CPI and FOMC minutes.

US CPI and FOMC minutes on tap. In today’s US September CPI release I’ll watch the month-on-month data (expected +0.3% for the headline and +0.2% for the core) more than the year-on-year data points (expected unchanged at +5.3% for the headline and 4.0% for the core) for market reactivity. In terms of the surprise side, the downside surprise could carry more impact on the US dollar, especially via USDJPY if treasury yields drop on lower numbers. On an upside surprise, barring something crazy, I’m not sure how much the market reacts, given how cautiously the Fed seems to want to rollout out its tightening regime and given that we are at new highs for the cycle in Fed rate expectations already, the market having pulled forward its “first hike” FOMC forecast to most like the September or November FOMC meeting of next year. And on that front, I’m not sure what more we can get out of the FOMC minutes beyond what Powell spelled out at the September 22 FOMC meeting and recent comments from other Fed officials.

Powell said at the FOMC presser that reasonable jobs report for September was the caveat for tapering and as I have discussed, the factors behind lower jobs growth have nothing to do with availability of jobs and everything about the ongoing disruptions to labour supply, from controversial vaccine mandates to a shift in where jobs are on offer. Yesterday, the August JOLTS job openings survey was sharply lower, but a record 4.3 million US workers quit, especially in food and retail, industries with low wages, underlining the sense that motivated workers don’t expect it difficult to find a new job, even as pandemic-inspired benefits extensions ran out in early September.

The August UK Trade Balance out this morning showed a spectacular deficit, this time of £14.9 billion vs. £12 billion expected, and the July number was revised lower to £14.1B versus the original £12.7B reading. Barring the crazy few months of last-minute hoarding ahead of the January 1 Brexit date and before “hard Brexit” fears back at the end of 2018, this was the largest monthly trade deficit ever posted. Currencies don’t respond much to trade data when it is not in focus, but these numbers represent imbalances on a grand scale and reveal the scale of the capital inflows and other factors needed to counterbalance the trade deficit as the UK current account could deepen into the negative after turning lower since late last year. Strong risk sentiment and very firm BoE expectations will be needed to keep sterling aloft or better.

Table: FX Board of G10 and CNH trend evolution and strength
The negative JPY trend reading is getting rather intense – not to say that it will end, but JPY shorts won’t like a surprisingly soft US CPI today, although longer treasury yields are the important coincident indicator there. The USD trend is virtually non-existent with all of the crosswinds at the moment. Elsewhere, note that the Australian jobs report is up overnight as the Aussie vies for a comeback and the US futures market suggests that speculators are massively short the currency.

Table: FX Board Trend Scoreboard for individual pairs
Note GBPCHF trying to turn the corner to the upside here, with the GBPUSD not far behind if the pair can vault to a close well clear of 1.3700 in the coming days. Also, gold should be on the radar screen as spot gold in USD is making a bid at closing at a new three-week high today and cleared the 21-day SMA.

Upcoming Economic Calendar Highlights (all times GMT)

• 0900 – Euro Zone Aug. Industrial Production 
• 1230 – US Sep. CPI 
• 1600 – EIA's Short-term Energy Outlook (STEO) 
• 1700 – US 30-year T-bond auction 
• 1800 – US FOMC Minutes 
• 1900 – G20 finance ministers online press conference 
• 2030 – US Fed’s Brainard (voter) so speak 
• 2100 – New Zealand Sep. REINZ House Sales 
• 2200 – Australia RBA’s Debelle to speak 
• 2301 – UK Sep. RICS House Price Balance 
• 0030 – Australia Sep. Unemployment Rate / Employment Change 
• 0130 – China Sep. CPI / PPI