Dollar Jumps on Resilient Consumer Inflation, Stock Futures Tumble

Dollar jumps notably in early US session after stronger than expected inflation data. Headline CPI jumped 0.5% mom in January, above expectation of 0.3% mom. Annual rate of CPI was unchanged at 2.1% yoy, above expectation of 1.9% yoy. Core CPI rose 0.3% mom, above expectation of 0.2% mom. Annually, core CPI was unchanged at 1.8%, above expectation of 1.7%. The set of inflation does nothing to alter expectation of a Fed hike in March. More importantly, the resilience in annual reading is raising the chance of three or four hikes this year. Retail sales were disappointing but markets paid little attention. Headline sales dropped -0.3% while ex0auto sales was flat in January.

Technically, Dollar’s rebounds against Euro, Sterling, Aussie and Loonie are apparent. However, it looks quite unsure against Yen and Swiss Franc. The latter could be explained by risk aversion as stock futures tumble after the CPI release.

ECB: Bitcoin is not a currency

ECB President Mario Draghi is clear with his position on Bitcoin. He said it’s "not the ECB’s responsibility" to regulate Bitcoins. He acknowledge the blockchain technology as "quite promising" that could bring "many benefits". But he warned that "it’s still not secure for central banking and therefore we need to look through it and investigate it more." And when asked by the public on whether he should buy Bitcoin, Draghi said "frankly i would think it carefully".

At the same time, ECB published a short article explaining "what is bitcoin?" It short, it’s a "speculative asset". And, ECB explained that Bitcoin is not a currency by the following chart.

Released from Eurozone, GDP grew 0.6% qoq in Q4, same as prior quarter and met expectations. Industrial production rose 0.4% mom in December, above expectation of 0.1% mom. German GDP grew 0.6% qoq in Q4, slowed from 0.8% qoq but met expectation. German CPI was finalized at -0.7% mom, 1.6% yoy in January.

IMF: UK investment growth constrained by Brexit uncertainty

The International Monetary Fund warned in a report that UK "business investment growth has been constrained by continued uncertainty about the future trade regime." It pointed out that "UK growth moderated in 2017 despite significant monetary policy accommodation and strong trading partner growth, and is expected to remain subdued in the near term."

IMF emphasized that "early agreement on a transition period would avoid a cliff edge exit in March 2019 and reduce the uncertainty now facing firms and households." Also, "continued steady fiscal consolidation, with an emphasis on pro-growth spending and tax reforms, remains critical to rebuild fiscal buffers and maintain investor confidence." In additional, IMF urged BoE to continue to withdrawal stimulus at as "gradual pace".

Elsewhere

Japan GDP rose 0.1% qoq in Q4, below expectation of 0.2% qoq. GDP deflator rose 0.01% yoy. Australia Westpac consumer confidence dropped -2.3% in February. RBNZ 2 year inflation expectation rose 2.1% in Q1.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2300; (P) 1.2335 (R1) 1.2387; More….

EUR/USD’s recovery was limited well below 1.2403 minor resistance and weakens sharply. Intraday bias stays neutral with focus back of 1.2222. On the downside, sustained break of 1.2222 key support should confirm rejection from 1.2516 key fibonacci level, as well as near term reversal, on bearish divergence condition in 4 hour MACD. That could also signal completion of medium term up trend from 1.0339. In that case, near term outlook will be turned bearish for 38.2% retracement of 1.0339 to 1.2537 at 1.1697. On the upside, though, above 1.2403 minor resistance will revive bullishness and turn focus back to 1.2537.

In the bigger picture, key fibonacci level at 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 remains intact. Hence, rise from 1.0339 medium term bottom is still seen as a corrective move for the moment. Rejection from 1.2516 will maintain long term bearish outlook and keep the case for retesting 1.0039 alive. However, sustained break of 1.2516 will carry larger bullish implication and target 61.8% retracement of 1.6039 to 1.0339 at 1.3862.

Economic Indicators Update