Euro powers on data flow vs stock

Without the help of special effects or Greece rumours, the euro powered across the board as flash May Eurozone CPI rose to a six-month high of 0.3% y/y (vs expectations of 0.2%), while the core CPI rose hit a nine-month high at 0.9%, conveying a clear message that Draghi’s QE is delivering the aim of normalizing inflation dynamics.

Data flow vs. data stock

Highlighting FX traders’ emphasis on the data flow rather than data stock, EUR advanced further against USD as the 0.3%  increase in Eurozone May inflation emerges from an uninterrupted four-month improvement in contrast to an uninterrupted three-month declining trend for US core PCE price index (Fed’s preferred inflation gauge), which dipped to a 14-month low in April, despite its far superior reading of 1.2%.

In this case, the rate of change precedes the absolute data figure.

Bund yields soar 31%

It was the perfect storm of inflation-positive German and Eurozone inflation and German unemployment, which lifted 10-yr German bund yields by 30% to 0.67% today. The yields breakout above the 2-week trendline implies a possible extension towards the 0.77% resistance, which is likely to amass prolonged euro gains ahead.

The 0.4% decline in US April factory orders raised the number of monthly declines to eight out of the last 12 months, taking away from yesterday’s release of stronger than expected May ISM manufacturing survey.

USD bulls will wish for Wednesday’s May ADP survey to show a rise of at least 200K in order to preserve any stabilisation ahead of Friday’s data/event double header of NFP and Greek payment deadline.

The FX implication is especially powered by the decline in the US-German 10-year yield spread to -158 bps from yesterday’s -164 bps.

Euro awaits Draghi’s balance & guidance

As EURUSD regains its 100-daymoving average ($1.1085), the currency’s latest gains will depend on the tomorrow’s press conference by ECB president Draghi. To what extent will Draghi balance his speech between cheering the recent improvement in Eurozone business and price surveys as a vote of confidence for QE, and the degree to which he will reiterate the readiness to do more in terms of monthly asset purchases. The former will be covered by the ECB’s release of updated Eurostat’s projections on GDP and inflation, both of which are recovering. Markets will also scrutinize the pace of upward revisions (especially for CPI), as well as Draghi’s take on the impact of the rising euro on these projections.

And if the positive relation between bund yields and the euro remains as a gauge for future euro movements, then today’s yields spike erasing all of the past eight day’s declines could well call up the $1.14 figure as yields retest 1.04%.