Markets remain in a state of consolidation following the previous weekly moves and we are waiting to see if the latest USD rally can extend gains, or if this is yet another short-term correction ahead of the next round of currency buying. In the interim, developments on the fundamental front have been rather quiet with the main story still coming out of the Eurozone as EU officials continue to deny the rumors of a Greek debt restructuring. Nevertheless, with all of the talk, market participants have not been able to easily dismiss the rumors and remain somewhat unsettled.
Data out of China overnight has failed to materially influence price action on Wednesday thus far, with risk appetite remaining intact despite some higher inflation and softer retail sales and industrial production out of one of the world’s fastest growing economies. The Australian Dollar which is highly correlated to China, has in fact rallied on the day back above 1.0850 thus far. Meanwhile, both the Yen and Franc are finally starting to show signs of basing, and we could see these currencies start to sell of more aggressively over the coming sessions. We contend that even in a risk negative environment, both the Yen and Franc stand to lose ground with both currencies trading by record highs and due for a major trend reversal. Some softer inflation data out of Switzerland on Tuesday certainly helps our argument.
Looking ahead, the Pound will come back into focus in Wednesday trade with the highly anticipated Bank of England inflation report due out, along with some other key data in the form of UK trade. Other important data releases on the day include German inflation and US trade. On the official circuit, ECB’s Mersch, Bini-Smaghi, Stark, and Orphanides are slated to speak along with Bank of England Tucker and Fed’s Lockhart, Kocherlakota and Pinalto. US equity futures and oil prices are flat while gold tracks moderately higher.