Many inter-market correlations broke down in NY trading as the ballyhooed triple witching option expirys loom on Friday. Economic data was on the light side with only US producer prices of note. The headline number printed well below expectations, dropping -0.6% in the month of February compared to a 1.4% jump the prior month. The drop was on the back of a sharp decline in the energy space and the core number (which excludes food and energy) actually came in bang-on expectations, rising 0.1% in February.

Inflation remains quite muted overall and is unlikely to force the Fed's hand (in terms of raising rates) anytime soon. One only has to look at the 5-year breakeven rate (the implied inflation premium in Treasuries) which is currently flashing 1.87% inflation over the medium-term. To put this in perspective, this metric remains below the bottom of the range that dominated prior to the financial crisis.

The one clear path of least resistance amidst what was a very confusing session for price action (for the most part recent correlations broke down in size) was the so-called trade in the commodity currencies. USD/CAD continued to beat a retreat toward parity as it sank from overnight highs near 1.0140 towards the 1.0070 session lows. There is talk of a number of option barriers now resting all the way up to the 1.00 level and thus we expect any move to parity to be fraught with choppiness.