Tomorrow is the big day: The ECB meeting and the US releasing Q1 GDP

Outlook: The Bank of Canada meets today but no change is forecast. We also get the US flash purchasing managers indices, but tomorrow is the big day, with the ECB meeting and the US releasing Q1 GDP, which will contain data on consumption and thus on inflation.

You’d think it would be a tidbit, but we think this nugget from Bloomberg shows the disparity between euro bulls and euro bears. So far the bulls Are winning despite data that would fell a lesser currency. If the US had data as bad as the eurozone and especially Germany, the dollar would be in the tank. This time the evidence comes from the equity side:

“Not everyone is on board with the rally in stocks though. The Qube hedge fund is making a billion dollar bet against German stocks as a downturn in global demand slows Europe’s biggest economy.

“The fund  has amassed a short bet of more than $1 billion against German companies after added to wagers against the likes of automaker Volkswagen over the last two weeks, and also disclosing a $131.8 million short against Deutsche Bank, according to data compiled by Bloomberg from regulatory filings.

“The bets come even as the benchmark DAX stock index remains near its record high.”

This degree of strong opposing views has to come to a crash at some point. We may find out the outcome when the US reports GDP. If it’s on the high side and traders fail to buy dollars, we will know a new type of market factors is driving. We saw this before during Grexit when the euro “should” have tanked but mostly did not and kept bouncing back.

The implication is that the dollar is already overbought, especially because the early-rate-cut crowd has now been put in its place. But the cut is coming. We just don’t know when. The FT reminds us  that “A hefty 71 analysts polled last month by Reuters predicted on average the dollar would ease about 3 per cent to $1.12 against the euro and about 8 per cent against the yen to ¥137. The two make up about 70 per cent of DXY, according to Bloomberg.”

Forecast: Given an ECB on hold and robust US data tomorrow and Friday, it’s peculiar that the euro firmed, indicating vast uncertainty about what is driving and should be driving the rate. It looks like the dollar is not going to get a boost from hawkish data on Friday or hawkish noises from the Fed.

Tidbit: As known beforehand, Trump won the New Hampshire primary but opponent Haley did so well (over 40% of the vote) that she is hanging around for the next one instead of bowing out. Reuters says Trump is “furious.” We have no historical comparisons of a NH primary performance of a former president, but Trump’s performance is definitely subpar. This doesn’t help much because he is going to be the nominee no matter what, but it does show that not all Republicans are stuck to the party come hell or high water. It’s a little interesting that US cable news is taking note of the views of European leaders, including at Davos. 

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