We continue to wait for decisions on Forex, with the dollar still holding the best cards. The question remains open whether the positive surprise of European readings brings ECB rate cuts closer. Low inflation hits the SEK, and analysts suggest a Trump trade.
Final inflation data in mid-month may not make the biggest impression on investors, but it’s hard to ignore it just before the ECB meeting. Especially when the CPI indicator in the second-largest EU economy has been revised downwards. As a result, inflation in France only increased by 1.1% year-on-year, the lowest result since April 2021. Spain confirmed a 1.5% result, also the lowest in three and a half years. These readings bring the prospect of Thursday’s rate cuts by euro-area policy-makers closer. The positive surprise was industrial production in the euro area, which saw a symbolic increase of 0.1% year-on-year in August instead of the expected 1% drop. This was the first reading above zero from December (and even the previous reading of this type was recorded in February 2023). The fast-approaching moment of another credit cost cut (which contradicts the previous narrative of the ECB about one cut per quarter) weighs on the euro, but the question seems increasingly relevant whether this move is not already priced in? Especially since the EUR/USD rate continues to struggle with the support area around 1.09$. Despite all, it is still the dollar that is dealing the cards on this pair, maybe not at an astonishing pace, but still deepening the lows. Therefore, it is still more likely that the EURUSD will drop below 1.08 $ and test these areas, which have built quite serious support this year. This would also be consistent with the previous range of dollar weakening, which led the EUR/USD rate to 1.12$. The continued appreciation of the “greenback” will constitute a serious burden for the zloty, which, together with the rest of the region’s currencies, remains very sensitive to overall market sentiment. During Tuesday’s session, PLN remains stable, waiting for clearer impulses, which may only come in the second part of the week. Thus, after 3 p.m., the euro rate is close to 4.29 zł, the dollar rate is 3.93 zł, the franc rate is close to 4.56 zł, and the pound rate exceeds 5.15 zł.
SEK/PLN up after CPI
We saw the final inflation reading today on the northern side of the Baltic Sea as well. The Swedish CPI in annual terms was 1.6%, the lowest in over 3 years. This will surely become an argument for proponents of the fourth rate cut in this cycle by the Riksbank. One of the factors pushing away this perspective may be the weak Swedish crown, which, after today’s reading, is clearly losing on the broader market and trying to erase its October profits. However, there is still a safe distance to the historical weakness from December last year, which gives decision makers room for manoeuvre (the decision meeting is only on November 6). The EUR/SEK rate has dropped to 11.3 kr after this morning’s publication, and the SEK/PLN rate has reached 0.38 zł.
Sentiment full of contradictions
Some link current events in the financial markets with what they see as the rising chance of a Republican’s election as President, even suggesting a market game called “Trump trade”. Leaving aside my view that the thesis of the GOP candidate’s chances of winning is at least dubious, this way offers a simple answer to a tough puzzle. Certainly, a festival is taking place on Wall Street, where the S&P500 is breaking new records and Nasdaq is only 1% away from its historical peak. However, it is hard to ignore the fact that another driving force on NYSE comes from the companies themselves, which are just entering the third quarter results presentation period. These are largely better than expected. The exception are companies from the extraction and energy sector, which cannot deal with low commodity prices. With positive reports from most companies, it is not surprising to see capital inflows. A completely different story is taking place in China, where indices have taken a sharp downward turn today, which is considered a result of unmet expectations (or rather lack of specifics) by the government’s economic stimulus package. European exchanges are somewhere in the middle, with the French CAC40 clearly declining, where luxury-sector companies, for whom the Chinese are an important customer segment, weigh heavily. London and Milan are also below the line, but Frankfurt and Madrid are on the upside. Can this be considered a clear direction of the capital market? The same goes for the dollar, which has been in a trend of appreciation for over two weeks now, when changes to the expected Fed loosening path started to appear once again. Trump trade or, rather, simply a multi-threaded mix trade?
Author: Adam Fuchs, currency analyst at Walutomat.pl
Source: https://managerplus.pl/trump-trade-czy-mix-trade-59740
