CIBC

FX Flows

There was right-hand side Tokyo fix for USDJPY and the JPY crosses, USDJPY rose to 110.44 before declining back to 110.30s. One trust bank told me the fixing also saw selling from institutions.

AUDUSD started firmer, managed to break above 0.7500 after China published stronger trade surplus for June. About AUD1.7bn of 0.7500 strikes mature on Thursday. Downside 0.7400, I think there is an option barrier there.

An article in FT today said this new inflation targeting could divide the ECB. Some GC members have already called for start of winding down stimulus but Lagarde reiterated she has neither the expectation nor the illusion that ECB will be unanimous on all the decisions. Constant offers were mentioned above 1.1875 coming from strategic names, likely to be adding to shorts. Think we will be consistent on move towards 1.1900. Interesting that death cross developed in the daily charts.

NZDUSD is back on the 0.70-handle ahead of RBNZ tomorrow. Macro strategist Patrick Bennett in his preview said a revision of RBNZ forward guidance on Wednesday and concession of a better economic outlook can however provide some NZDUSD support. Our near-term outlook is for consolidation.

Citi

The overnight session was a bit of a stroll, with very limited price action leaving markets rangebound ahead of US CPI. The bid bias for USD dissipated by the end of the Monday session, and our eTrading Desk notes that interbank trading volumes were 20% below the 30 day average.

China trade data came in stronger than expected, in both exports and imports, stabilizing expectations for Q2 GDP on Thursday. CZK sees its own CPI print this morning, but there are no other data points to talk of aside from US inflation. ZAR has seen some stabilization after Monday’s meltdown, while we saw light activity elsewhere.

USD has pared some of its latest gains. Absent any major market moving headlines, the bulk of Monday’s price action appeared to be flow induced ahead of US June CPI Tuesday. Take note of the following details:

Our economists expect another month of stronger-than-usual core CPI, with a 0.51%MoM increase in June. Some strength should again be in “transitory” components such as used cars, hotels, and airfares, although we increasingly see potential for upside surprises to more persistent components like shelter prices.

Given that the recent move lower in US longer-end yields does not seem clearly driven by domestic growth or inflation fundamentals, our team sees substantial uncertainty around the market implications of the June CPI print. Strength in components such as owners’ equivalent rent or restaurant prices could signal more-persistent inflation that would lead US Treasury yields to rise again.