FX Daily: London Today's Key Data and Events

[RTFX-Trading]

FX Daily: London

Today's Key Data and Events
CHF Producer & Import Prices for June, 0.3% mom market expect (07:15 GMT)
GBP GDP for Q2, 0.7% q/q market expectation (08:30 GMT)

Upcoming Event Risks
July 25 Australian Q2 CPI
July 26 RBNZ rate decision

USD/CHF More a Dollar than a Carry Play
Over recent days we have been arguing that many dollar crosses look somewhat expensive relative to rate differentials. An exception to this has been USD/CHF and USD/JPY, both of which have been above what the rates market currently implies. While this is partly due to this year's carry rally that has put the low-yielders to a disadvantage, it is worth noting that USD/CHF has over the last three months been more dependent on the overall dollar trend rather than carry performance. While a sustained performance in carry may therefore run the risk of frustrating those looking for a large `catch-up' in JPY, it would be less of a constraint to USD/CHF weakness, which could be given added impetus should it threaten to breach the 1.19 support level that has been in place over the last twelve months.

Oil, Credit and Vol Also Matter for EUR/USD
In today's FX Strategy Weekly we show that credit markets do not yet appear to be having a significant influence on carry trades, with the current low levels of FX volatility still the dominant driver. In contrast, looking at the relative change in correlations over the last three months, we find that credit market crossover indices have been growing as a driver of EUR/USD. These now belong to our `top-10' list of EUR/USD drivers, in addition to movements in rates. Interestingly, the correlation between volatility in rates and currency markets and dollar moves also appears to have picked up, with the still low levels of implied volatility likely encouraging currency investors to add to short dollar positions and long carry positions more generally.

George Saravelos
Strategist