Financial market research and analysis

Trade war fears ease as Kudlow replaces Cohn Whilst the S&P and Nasdaq struggled overnight, the Dow Jones managed to snap its 3-day losing streak, as trade war fears eased, on the appointment of Larry Kudlow as Trump’s economic advisor. The markets are rather relieved by Trump’s choice, as reflected by industrials moving higher early on. Kudlow is known as an advocate of free trade, so given the protectionist policy concerns and trade war fears circulating, the fact that Trump is even willing to have Kudlow on his team, is an encouraging sign.

Trading has been extremely choppy over the last week as investors have focused almost single mindedly on the White House and trade war fears. Whilst these concerns are likely to hang around for a while, the FOMC next week and US earning season in two weeks, will provide distractions to traders. This is especially given the strong earnings expectations, which could serve to underpin the markets as uncertainties over the direction of Trump’s administration unnerve traders and as the Fed hikes rates.

Eurozone Inflation under the spotlight

Dovish Draghi was responsible for pulling the EUR/USD lower earlier in the week, as his concerns over a strong euro and sluggish eurozone inflation weighed on sentiment for the common currency. The dollar then cheered the appointment of Larry Kudlow a vocal supporter of a stronger dollar which boosted the greenback pulling EUR/USD even lower on Thursday.

Today attention will flip back to eurozone inflation. CPI is expected to have ticked down slightly in February to 1.2% year on year, from 1.3% in January. Month on month inflation is expected to have increased to 0.2% from a particularly disappointing January print of -0.9%. Core inflation is forecast to remain constant at 1%.

These forecasts highlight the problem of stubbornly low inflation encountered by the European Central Bank, which remains well under the ECB’s target 2%. Whilst eurozone growth was the big story for 2017, in 2018 economic data is pointing to a loss of momentum. The labour market across the bloc also has significant slack still meaning that patience is a must before inflation starts to make any meaningful move towards 2%.

EUR/USD steady at $1.30 support

EUR/USD has fallen 0.7% over the past two sessions but has once again found support at $1.23. Softer than forecast CPI data could see EUR/USD continue its declines to the next level of resistance at $1.2265, before extending to $1.22. A surprise to the upside in the CPI print could see EUR/USD push back towards support at $1.2335, opening the door to $1.2380 on the way to and beyond $1.24.