Rates: US eco data overshadowed by looming Fed?
We expect US eco data to beat consensus today, but they might be overshadowed by next week’s FOMC meeting which will likely result in a more dovish US monetary policy stance. The US 10-yr yield is still battling with 2.61% intermediate support. ECB Rehn, who is one of the frontrunners for succeeding President Draghi, speaks on monetary policy.
Currencies: EUR/USD to remain well supported ahead of next week’s Fed meeting
The EUR/USD rebound took a breather as risk sentiment turned less buoyant and as news flow was less euro supportive. Still, the dollar remains in the defensive as markets expect the Fed to cement expectations for a (prolonged?) pause. The sterling rally also met resistance as uncertainty remains elevated even as chances on a no-deal Brexit have diminished
The Sunrise Headlines
- US equity markets halted a three-day rally, ending close to opening levels yesterday. Asian equities are largely trading in green this morning with Chinese indices outperforming.
- UK Parliament voted to extend the Brexit deadline beyond March 29. PM May will now put her Brexit deal again to a vote on Tuesday. If passed, an extension until the end of June is likely. Otherwise, a longer extension is inevitable.
- The US Senate voted to block President Trump’s declaration of a national emergency to free funds to build his wall at the Mexican border. US President Trump already said to veto this decision and to continue with his plans.
- North Korean Vice Foreign Minister Choe Son Hui said his leader Kim Jong Un will decide soon whether to keep the denuclearization talks with the US ongoing. He added that the US threw away a golden opportunity when in Hanoi.
- China has passed a new investment law granting foreign companies equal standing with state-owned businesses. PM Li Keqiang said he hopes this will pave the way to a new trade deal with the US.
- The Bank of Japan has left its policy balance rate unchanged at -0.1% and said it will keep the asset purchases steady, while it downgraded its assessment of exports, factory output and overseas economies.
- Today’s US eco calendar contains the Empire Manufacturing Survey (March), Industrial production data (February) and University of Michigan Consumer Confidence (March). ECB’s Rehn speaks
Currencies: EUR/USD To Remain Well Supported Ahead Of Next Week’s Fed Meeting
EUR/USD rather well protected ahead of the Fed
This week’s euro rebound slowed yesterday. IFO downgraded its growth outlook for Germany (0.6% for 2019). US eco data were mixed and didn’t provide directional guidance even as markets assume the Fed to stay soft next week. The risk of a disorderly Brexit was seen declining due to recent votes in the UK Parliament. Yesterday’s vote to delay Brexit added to that picture, but it was expected and didn’t provide any further support for the euro or sterling anymore. A pause in the risk rally also blocked further euro gains. EUR/USD closed at 1.1304 (from 1.1327). USD/JPY followed a broader USD rebound (close at 111.70). Overnight, sentiment on Asian markets turned again positive. Chinese officials including Premier Li confirmed selective (fiscal) stimulus to support growth and job creation. The BOJ as expected left its policy unchanged but downgraded its assessment on the economy due to a less favourable international context. The BOJ decision is only of second tier importance for (FX) markets in Asia. USD/JPY hovers in the 111.70 area. The risk-on trade helps putting a floor for EUR/USD (1.1315 area). Today, the EMU calendar contains the final CPI and Italian industrial production. In the US, the Empire survey, production and Michigan consumer confidence will be released. US data are expected to rebound after soft/poor numbers the previous month. Still, it is unlikely they will change markets’ assessment on the Fed’s cautious stance next week. (Moderately) positive US data might even support the ST risk rebound which shouldn’t be too bad for EUR/USD and USD/JPY. Brexit might move a bit to the background as a driver for (FX) trading. This week, EUR/USD profited from the risk rebound, at least partially supported by soft expectations on next week’s Fed meeting. After a pause yesterday, it looks the risk rebound might continue. Whatever, we don’t expect a big dollar comeback ahead of next week’s Fed meeting, Post-ECB euro negativism eased and the technical picture for EUR/USD become more stable compared to this time last week. The 1.12 range bottom survived. Any further sustained rebound needs better EMU data. As long as the EMU eco picture remains foggy, more EUR/USD consolidation might be in the cards (1.12/1.14 area).
Yesterday, the sterling rebound did run into resistance. A non-deal scenario has become for less likely after this week’s votes in parliament. Still, visibility on the outcome of the political process remains limited. This is a fortiori the case for the fallout on the economy. We don’t front-run on possible further Brexit-related GBP-gains from current levels. The 0.85 area might become a ST floor for EUR/GBP
EUR/USD: rebounds from 1.12 range bottom due risk rebound and as markets position for a soft Fed next week
