END OF SEQUENCE? - We continue to see a lot of back and forth price action in the markets. If you look at US equities, the past 6 sessions have been a chain of up and down. Should this pattern continue on Monday, we will see a bearish close. But with EUR/CHF and USD/JPY recently bouncing from recent trend lows, I am more skeptical this sequence will play out today. Overall, I am still quite bearish risk correlated markets, and am still looking for the onset of a major correction in 2014. Yet, the more and more I watch, the more I am considering the possibility that equity markets remain stubbornly well bid, but at the same time, the US Dollar finds renewed demand. I am now only holding FX exposure long US Dollars via the New Zealand Dollar, and will be looking for Kiwi underperformance in the sessions ahead. Look for a break and daily close below 0.8515 to open the door for a structural shift in NZD/USD.
IF I WERE TO FOCUS ON ONE PIECE OF DATA... - Later this week, we have a huge market moving number out of the US, with inflation data due Thursday. The Fed has been backed into a tighter corner with unemployment dipping back below 6.5% and it has become increasingly difficult to justify continued ultra accommodative policy. One of the things that has kept the Fed from shifting policy has been "well anchored" inflation, which remains below the 2% threshold. But should this week's CPI print come in close to or above 2%, which is entirely possible, I think this could spark a major shakeup in the markets. The Fed would then be in a much more uncomfortable position where it would need to consider tighter policy much more seriously. This in turn would most likely narrow yield differentials back in favor of the US Dollar, and could very well weigh on risk correlated assets. So while I am never the guy to focus on one specific data print, if I were to focus on such a print, it would be this week's CPI data.