- Rates: ISM takes investors by surprise
US yields added up to 10 bps yesterday on the back of a strong manufacturing ISM, positive risk sentiment and higher oil prices. The former wrong footed some gloomy investors. We won’t consider the sky as cleared yet with ADP employment, services ISM and payrolls still up for release this week. Previous support around 2.5% now serves as resistance. - Currencies: US dollar nears key resistance levels on solid US eco data
The dollar extended gains supported yesterday by a strong US manufacturing ISM and higher US yields. Today, the eco calendar is less inspiring. FX traders will look forward to key US data later this week. EUR/USD is nearing the 1.1187/77 support. The day-to-day momentum is USD supportive, but we expect any further USD gains to be modest and very gradual
The Sunrise Headlines
- US equity markets jumped higher yesterday with gains close to 1.25% as global sentiment flourished and after strong ISM results. Asian equities are all moving higher this morning with Japanese indices slightly underperforming.
- UK Parliament again voted down all alternative options to replace PM May’s Brexit deal. A motion to remain in a customs union with the EU came close to find majority. PM May meets with her Cabinet today to discuss how to proceed.
- Australia’s central bank left its policy rate unchanged at 1.5%, as expected, and underscored the strength of employment. The RBA also awaits the effects of a fiscal injection that is expected to be announced by the government later today.
- Japanese companies expect inflation to be at 0.9% a year from now, unchanged from their projection three months ago, underlining the challenges for the BoJ to boost growth and prices in times of a slowing global demand.
- OPEC’s crude oil output declined for a 4th consecutive month. Saudi Arabia continues to cut production aimed at balancing global markets, despite pressure from US President Trump. A barrel of Brent crude oil costs north of $69 a barrel.
- The Greek government is exploring the option to repay part of its loans from the International Monetary Fund ahead of schedule. The early repayment could mean another step toward economic stabilization.
- Today’s eco calendar is meagre with in the US Durable Goods orders (Feb) and Capital goods shipments nondefense and ex-air (Feb). The EMU prints producer inflation data, while ECB chief economist Peter Praet is scheduled to speak.
Currencies: US Dollar Nears Key Resistance Levels On Solid US Eco Data
USD near resistance levels on solid US data
The euro initially profited from a positive risk sentiment yesterday. EUR/USD tested the 1.1250 area. The final EMU manufacturing PMI’s and EMU March inflation printed again below expectations. At first, the negative impact on the euro was limited. Later, the balance tilted in favour of the dollar. US retails sales and a solid manufacturing ISM confirmed that the odds are still much better for the US economy than for EMU. The US-German interest rate differential widened sharply. EUR/USD dropped to the low 1.12 area (close at 1.1213). USD/JPY jumped well north of 111. (close at 111.35). Yesterday’s risk rally is taking a breather in Asia this morning, but most indices easily maintain yesterday’s gain. This pattern also applies to the US dollar. Yesterday’s rise in US yields is slowing. The trade weighed dollar trades near 97.35. USD/JPY is seen around 111.40 as EUR/USD is testing the 1.12 level. The RBA left its policy rate unchanged at 1.50 %, as expected. The bank kept a rather balanced assessment. However, the RBA underlining it will monitor developments when setting policy might be an opening to ease policy if necessary. AUD/USD jumped up and down after the decision, but finally turned south (0.7080 area).
Today, the eco calendar is a less inspiring than yesterday. US durable goods orders/shipments are expected to ease in February after a decent January reading. The market reaction might be more guarded than after yesterday’s ISM’s.
Yesterday’s divergence between US and EMU data pushed EUR/USD for a test of the 1.12 area. Key US eco data later this week (ADP, non-manufacturing ISM, payrolls) will decide whether a break of major USD cross rates beyond recent peak levels will occur. The day-to-day momentum is USD supportive/euro negative. That said, we assume that any further USD gains might only occur in a very gradual way. We don’t expect the Fed to leave its wait-and-see bias anytime soon. Further USD strength might also capture the attention of US politicians and even of some Fed members. Next support beyond 1.1187/77 area is coming in at 1.1110 ahead of the psychological barrier of 1.10. Yesterday sterling traded with a positive bias as MP’s prepared for a new series of plan B-amendments. However, none of the alternatives obtained a majority. Sterling lost modest ground after the vote. The pair is again trading in the 0.8575 area. The UK PM will hold a new round of crisis talks today. This might lead to a next round in the Brexit-carousel later this week (new vote on PM May’s plan?). With all binary options still open, we expect more erratic EUR/GBP trading near current levels.
EUR/USD: testing the 1.12 area as data suggest growing US-EMU growth divergence
