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Two initiation points was all it took to trigger a steep slide in bonds, the dollar index and the Dax. Firstly, the higher-than-expected eurozone CPI triggered a strong move up on the eurodollar as the convergence trade overwhelmed the divergent policy bet between the EU and the US. This was quickly followed by a lackluster weekly red book retail sales report for the US, adding to the initial moves of key dollar pairs. A spike in government bond yields followed, spooking European markets on Tuesday that have been twitchy about the prospect of a resumption of the steep bond market sell-off seen a month ago. The drop in bonds came as European consumer prices picked up more than expected in May, increasing the chance the European Central Bank will meet its 2% annual inflation target and curtail its quantitative easing program. Major dollar pairs, in particular the aussiedollar and eurodollar swung more than 100 pips in active trading last night. With so many data points to trade off this week including today’s Aussie GDP and Friday’s key US employment report, the only sensible advice for all traders over the next days is to fasten your seat belts and enjoy the ride!
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