EUR: Look for a new cycle high in core eurozone CPI
As above, the re-pricing of central bank cycles has been more keenly felt in the eurozone than the US this week. That trend should be supported today with the release of February's core eurozone CPI which looks likely to exceed the 5.3% year-on-year consensus. We have had little push-back from the European Central Bank against the repricing of the cycle, which now seems to price the deposit rate above 4.00% early next year. That seems excessive, but let's see what today's release of the ECB minutes has to say.
Also important today will be comments from consistent hawk, Isabel Schnabel, speaking at the Money Market Contact Group in Frankfurt at 1330CET today. Will she push back against this aggressive pricing of the ECB cycle? EUR/USD may well be trapped in a 1.0600-1.0700 range today.
Chris Turner
CEE FX made a giant leap yesterday, as did the entire EM space, driven by positive news from China and the EUR/USD move higher. However, we do not think the US dollar has had the last word. So the CEE region may still benefit a bit today from yesterday's move but we do not expect a significant extension of recent gains. This should have been limited by the already very heavy positioning and in the case of the Czech koruna, near-historically strong levels.
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Today's calendar in the region is almost empty, so the global story will be a decisive driver again. However, it is hard to see a significant trigger for a correction in the CEE region at the moment and thus we prefer to be rather bullish for potential further positive surprises for the EM space and persistent carry trades. From this perspective, it seems the Polish zloty could start to catch up with its CEE peers given its position as the only underperformer this year. In our view, everything negative on the table has been priced in and thus has room to get back on track supported by global momentum.
Frantisek Taborsky
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