Stronger Euro and weaker commodity price may cause downside risk to inflation

PBoC's monetary policy easing  will cause upside risk in short term as Euro has strong sensitivity to risk sentiment. However, as both a stronger Euro and weaker commodity price developments should have increased downside risks to inflation, ECB President Draghi may well turn more dovish as part of next month's central bank rate announcement, states CAB Bank. As such monetary policy prospects may become more important anew. This is especially true as the latest development should have decreased speculative short positioning considerably. 

"Commodity currencies is expected to stay subject to downside risk. Even if Chinese growth expectations were to stabilize, such prospects would bring the Fed back in focus and it would increase the probability of them considering higher rates ahead of the end of the year. Rising Fed rate expectations to the benefit of the USD should keep commodity price developments capped", says CAB Bank. 

Ahead today, it will be quiet in terms of market moving data releases. If anything US business inventories will be in focus. However, in the current environment it should remain about risk sentiment to drive FX.