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EURUSD just a few pips from parity

Good morning

There is just no stopping the US dollar. EURUSD has traded to within just a few pips of parity, GBPUSD has been to 1.1845 and USDJPY is back to the mid 137s. In Europe the ongoing energy crisis, slowdown concerns, and fragmentation worries are all driving the single currency lower, while in the UK the latest BRC retail sales numbers released overnight show another slump in spending as the cost of living crisis intensifies. BOEs Bailey has said he expects UK inflation to fall sharply next year and to be back to 2% in a couple of years. To add to GBP woes, the UK HealthSec has said measures may need to be introduced should Covid hospitalisations increase. Watch the word Centaurus, its supposed to be the latest highly transmissible variant.

I’ve seen various trade ideas looking for EURUSD downside including a two month 0.9700-0.9300 put spread, a three month parity put, and I had a look at a two month parity put yesterday, adding in a knock out at 0.9450 to cheapen it up. General feeling is a break lower is a matter of when, not if. German ZEW this morning unlikely to offer any lasting help for the single currency.

The timetable of the contest for the next Tory leader has been released, the eleven candidates are likely to be whittled down today as those standing need to find support from at least twenty MPs and will then need thirty votes on Wednesday. We’ll have two candidates left by the end of next week, Tory party members then vote with the results due to be announced on 5th Sept. The betting suggests it’s a three horse race, Sunak a slim favourite over Mordaunt, closely followed by Truss. As I type, I am reading that Labour are planning to table a no-confidence motion in the government. A loss by the government would likely trigger a general election but for this to happen a lot of Tory MPs would need to vote against their own government,. Why they would do so, particularly now Johnson is on his way out, is beyond me.

A very light economic calendar today but we do have a full day of data tomorrow beginning with RBNZ rate announcement in the early hours, a 50bps rise is widely expected but this is surely priced in so I’d be surprised if it offered any support to NZD. China trade data is out at the same time, another hefty surplus is expected. We have UK GDP and industrial production tomorrow morning, difficult to see how they will look good, German inflation is also out in the morning, unlikely to offer support for EUR. US inflation tomorrow afternoon will be very closely watched for any signs of slowing, then BoC will announce their latest rate move, likely to be a rise of 75bps to 2.25%.

Until then we’ll have to watch EURUSD and I strongly suspect we’ll be on a 0.99 handle at some point today. Also today, my eldest is retaking his driving test having failed back in January and having to wait six months for a retest. It’ll be close. I have no problem sitting in a car with him driving, I feel perfectly save, he isn’t rash or dangerous. So should be simple enough. But he does have a tendency of being indecisive in situations that are new to him, so if something unexpected happens it could scupper his chances of a pass. At least the car has air-conditioning to cool down the examiner.

Finally I see that NASA have released the first photo taken by the James Webb telescope. It is said to be the most detailed view of the Universe to date, containing light from galaxies that has taken billions of years to reach us. The scale is unimaginable. Further images will be released this afternoon at 14.45 london time. As usual, to the untrained eye these are going to be less incredible but the distancing and time periods is what makes it all so fascinating. Bear in mind the big bang was 13.8 billion years ago, it is thought James Webb pictures will pick up light that has travelled 13.3 billion years.

- 10.00 German ZEW survey

- 18.00 BoEs Bailey speaks

- 01.30 AUD Westpac consumer confidence

- 03.00 RBNZ rate announcement

- 03.00 China trade balance

- 07.00 UK GDP, industrial production,

- 07.00 German CPI, HICP

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