Sunrise Market Commentary
Rates: Core bonds lose ground, but be aware of risk sentiment
With French election risk out of the way, focus may shift to the potentially key June ECB and Fed meetings. Anticipation on hawkish outcomes could push the German and US yields back higher The fragile picture of commodity markets, historically low volatility, and record equity prices are a risk scenario which could lift safe haven assets in case of a risk-off correction.
Currencies: Dollar rebounds
Yesterday, the dollar captured a better bid. EUR/USD fell prey to profit taking after the Macron victory. USD/JPY profited from the resilience of US equities and a rise in US yields. Today, the eco calendar is thin. Some further pro-USD repositioning might be on the cards.
The Sunrise Headlines
- US stocks closed flat yesterday, after Apple shares surged to an all-time high and the Vix index closed at its lowest point since 1993. Overnight, Asian stock markets trade mixed.
- The Australian dollar eased to four-month lows after disappointing retail sales (-0.1% M/M) figures reinforced expectations of steady interest rates for months to come.
- German production fell a smaller-than-expected 0.4% in March (expected -0.7% M/M), but February production was slightly downwardly revised to 1.8% from 2.2%. It confirms strong activity in Germany. The trade surplus widened to €25.4B from 20B previously, even as exports lagged imports.
- Saudi Arabia’s oil minister said that oil producers would "do whatever it takes" to rebalance the market and that he expected a global deal on cutting crude output to be extended to the end of 2017 or possibly longer.
- The former head of the US Department of Justice told Congress that she had warned the White House in January that Michael Flynn, the first national security adviser appointed by Donald Trump, could be blackmailed by Russia.
- South Koreans headed to voting stations today to elect a new leader, looking to move on from a corruption scandal that brought down former President Park Geun-hye and shook the political and business elite to the core.
- Today’s eco calendar remains thin with only US NFIB small business optimism. Austria, the Netherlands, Germany (inflation-linked) and the US tap the market. Fed governors Kashkari, Rosengren and Kaplan are scheduled to speak.
Currencies: Dollar Rebounds
Dollar rebounds as euro rally runs into resistance
On Monday, a buy-the-rumour, sell-the-fact correction after Macron’s victory caused a modest reversal on earlier EUR/USD, EUR/JPY and USD/JPY gains. EUR/USD tested the 1.10 level in Asia, but declined throughout the session and closed at 1.0924. The European equity correction initially also weighed on USD/JPY, but the pair found a better bid as US equities were very resilient and USD bond yields reversed an early decline. USD/JPY finished at 113.26 (from 112.76 on Friday).
Overnight, Asian equity markets trade narrowly mixed in the absence of new eco info. EUR/USD stabilizes in the 1.0930 area. USD/JPY maintains yesterday’s gains and trades in the 113.30 area. Of late, price declines in several industrial commodities weighed on the Aussie dollar. Today, a domestic factor, disappointing retail sales, were to blame for a further AUD/USD to the 0.7355 area.
Today, the US calendar only contains the JOLTS Job Openings and the NFIB small business confidence, no market movers. We expect them to come out at healthy levels. Various Fed governors will speak on non-monetary policy themes. Ultrahawk George, on the contrary, speaks on the balance of economic risks and monetary policy. She might warn that the Fed risks to be behind the curve, but she’s an outsider inside the FOMC and her comments shouldn’t carry much weight. So, little guidance for USD trading today.
Yesterday, the euro fell prey to post-Macron profit taking. At the same time, the dollar was in good shape as US equities outperformed Europe and as US yields maintained an upward bias. The post-Macron equity correction shouldn’t go far. This might continue to support USD/JPY. For EUR/USD the picture remains indecisive. Markets are still looking for signs that the ECB will change its communication at the June meeting. The euro recently already anticipated on such a scenario. If there is no additional news on this issue, the euro rally might (temporary) slow. At the same time, the downside of the dollar is becoming better protected. So, some further technical correction in EUR/USD toward to the 1.0821 (Spike higher after first round victory of Macron) is likely.
From a technical point of view, USD/JPY bottomed out in April and regained the 112.20 resistance last week. This improved the technical picture. The rebound continues in a gradual way, but looks quite robust. Next intermediate resistance comes in at 115.51. EUR/USD extensively tested the topside of the MT range (1.0874/1.0906 area) late March. The pair returned to the range top after the first round of the French election and broke above the 1.09/1.0950 resistance at the end of last week. However, the break isn’t confirmed. A sustained break would improve the ST picture. Next resistance stands at 1.1129 (62% retracement) and at 1.1366 (correction top). A decline below 1.0821 would suggest that the dollar is regaining traction against the euro. A ST EUR/USD correction might occur as the pair is unwinding overbought conditions.
R/USD topside test again rejected. Some further post-Macron correction might be on the cards
EUR/GBP
EUR/GBP joins post-Macron euro correction
The global post-Macron reaction dominated UK trading yesterday. EUR/GBP corrected south and finished the session at 0.8442 (from 0.8473). The decline of EUR/USD (relative strength of the dollar) weighted slightly on cable. The pair dropped to the 1.2930 area and closed the session at 1.2940.
Overnight, the UK BRC like-for-like sales rebounded by an impressive 5.6% Y/Y (from -1.0% Y/Y in March). However, the figure was probably distorted by the timing of Easter. Sterling’s reaction remained limited. There are no important eco data on the agenda today. Technical considerations will prevail for sterling trading. Markets will look forward to the BoE’s policy meeting and the quarterly inflation report (Thursday). We don’t expect the BoE to herald a big change before the Parliamentary election. Soft Q1 growth gives the BoE the room not to hurry to signal a rate hike anytime soon.
Two weeks ago, EUR/GBP dropped below EUR/GBP 0.84 support, (temporary) improving the sterling picture. The pair came within reach of key 0.8305 support (Dec low), but no real test occurred. After a late April EUR/GBP rebound, the range bottom is better protected. Longer term, Brexit-complications remain potentially negative for sterling. On technical considerations we slightly prefer a EUR/GBP buy-on-dips approach.
EUR/GBP: trading within a tight 0.83/0.85 range
