The rally in risk markets continues this morning, but the expression is primarily through the equity markets. The dollar appears to be bid vs most developed market currencies, and treasuries have halted their slide. It feels like correlations are just easing off a bit, but it’s difficult to read too much into the price action, for example the chart for EUR/USD looks like nothing more than a period of consolidation. This surely makes sense given the moves we’ve seen since the beginning of July.

Some interesting data today: this morning we see inflation numbers come out of the UK, with expectations of a slight reduction, and in the afternoon we see inflation numbers also published in the US. As with the UK, the numbers are expected to show a slight deceleration in price growth. If the data comes out in line with expectations, it would certainly reinforce the narrative from the Bank of England’s Inflation report last week which implies that inflation is far from a threat at the present moment with tepid wage growth. But the way I would look at this data event is… what if the inflation number actually exceeds expectations? That would certainly be sterling positive if it’s the UK number, but probably injurious to risk markets if the US market has the positive surprise. Something to think about.

As EUR/GBP continues its somewhat choppy recovery, there is simply nothing impulsive about this bounce, which leads me to believe that once the market has had time to digest the moves over the last few months, the bear trend will re-assert itself. As I’ve mentioned before the immediate target if the reversal pattern from last week remains in force is the 0.8100 area. It’s just tough to get a sense of how quickly we get there with this meandering price action, but a bear trend that has persisted for a few months, probably needs a while to catch its breath.

The inflation data could potentially excite markets for a while today, but as I’ve said before the big stuff will be later at Jackson Hole. I expect the choppy price action to persist further into the week.