Pound Bounces, Yen Slides

The heavy round of risk aversion late last week partially retraced on Monday. The pound was the top performer while the yen lagged. Chinese inflation is up next. Our Premium trades in USDCAD, EURJPY, EURAUD, AUDND remain open and in progress.

Last week ended with a rout on risk-sensitive trades on worries about Fed hikes but the moves overextended and bounced today. The pound led the way, with cable recovering nearly half the 200-pip fall on Friday.

An exception was the euro, which failed to register any kind of meaningful gain. EUR/USD climbed to 1.0910 in early European trading as the ECB QE program got underway. Two factors might have led to euro buying at the start of QE. The first may have been some 'buying the fact' as the long-touted program finally began. The second may have been inflows into Eurozone assets. In any case, the bounce didn't last and the euro slid back to 1.0850.

The larger theme was yen selling on a better day for US stocks. USD/JPY continues to edge toward a breakout in the third day of gains. The ability to climb in a risk-on or risk-off environment is a positive sign and yesterday's soft Japanese GDP report increases the likelihood of more BOJ action.

In the shorter-term the focus shifts to China. The market disregarded the far-out-of-line weekend Chinese trade figures but that won't be the case with CPI at 0130 GMT. The consensus is a 1.0% y/y rise after a 0.8% reading in January. The PBOC already has the scope to cut the RRR but a low reading would add to the urgency.