Good morning
Month end is here. January always feels like a long month to me but if anything I think this one has gone pretty quickly.
Barring a short-lived bout of USD buying overnight, we’ve seen reasonably stable currency markets over the past day or so. EUR was pretty much unchanged after the ECB cut rates by 25bps to 2.75%, a move that had been widely expected and priced in, while impact from yesterday’s disappointing US Q4 GDP barely registered.
Once again, Lagarde gave little away with regard to forward guidance, although she did mention that an uptick in inflation is likely due to energy pricing. Another 25bps cut is likely but there is talk that the next cut would come with a change of tone from ECB, perhaps removing references to rates being restrictive. EURUSD is holding around the 1.0400 region.
Lagarde also mentioned that Bitcoin would not become part of the ECB’s reserves, which I have to say i heartily agree with. Still, this didn’t stop Bitcoin hitting a high of just over $106,000. Also making new highs was Gold, which touched $2,800/oz this morning.
Focus remains fully on Trump’s tariffs given tomorrow is 1st Feb, when tariffs are due to be introduced. Plenty of talk that Canada and Mexico are firmly in the firing line, with threats of 25% being cited as the likely number. Trump has also threatened BRICS nations with 100% tariffs should they look to replace USD as a reserve currency. It will be interesting to see how that pans out. He seems less certain on the rate and/or timing of China tariffs. An announcement before the US close this evening looks possible and could give a month-end shock to the markets.
Today brings US Core PCE and CAD GDP. USDCAD is currently 1.4465 having had a brief spike up to almost 1.4600 late yesterday on tariff talk. I’m looking for cheap upside options just in case we do get a tariff shock this evening, for example a Monday expiry USDCAD 1.4650 call costs around 35 cad pips, should give something to trade spot against. Paying a few pips more can extend that expiry by a few days.
One other thought would be to sell the Monday 1.4700 call and buy the one week 1.4600 call. Net cost around 50 cad pips. If the 1.4700 is exercised into a short spot position, it is covered by the long 1.4600 call, locking in a guaranteed minimum profit. If the 1.4700 is not exercised you remain long the 1.4600 call expiry next Friday. Just a thought, not had long to play around with the strikes on that one but hopefully you get the idea.
Looking ahead to next week it’s a pretty full calendar. We have the latest UK rate announcement on Thursday where a 25bps cut to 4.5% is possible but not fully priced I feel. EU inflation and retail sales are also out next week, Aussie trade and NZD unemployment are also on the agenda. Ah, let’s not forget ISM PMIs and employment numbers from the US with JOLTS, ADP, Challenger all leading up to Fridays nonfarm payrolls. Could be a busy start to February, that’s for sure.
Turning to sport, Spurs finally got a decent win and, along with Man Utd, earned a top eight Europe league positon, helped by a load of young players. They might be good enough for the Europa League, but whether they are yet up to the rigours of the premier league remains to be seen. Perhaps we’ll find out on Sunday when Spurs take on Brentford. Bournemouth v Liverpool should be a good match, Arsenal v Man City likely to be the highlight of the weekend I think.
Today marks the start of the Six Nations rugby, with hosts France taking on Wales. England make the trip to Ireland on Saturday. Quite a lot of expectation on England. France and Ireland are favourites, but if England can just turn the heat up a little I reckon they are win with a chance. A small flutter on them at 5-1 may not be bad. Any Scottish readers fancy their chances at 10-1?
The weather here is, once again, pretty bad but with some decent football and rugby to watch I’m quietly hoping this rain continues and I’ll be ‘forced’ to stay indoors.
Have a great weekend as and when it comes.
- 13.00 German HICP
- 13.30 US Core PCE, ECI, personal income/spending
- 13.30 CAD GDP
- 14.45 US Chicago PMI
- 20.00 Possible US tariff announcement
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