- Rates: Strong retail sales vs Fed comments
US Treasuries underperformed German Bunds yesterday even if part of the losses, inflicted by strong US retail sales, were eventually undone by Fed comments and signs of short term fatigue on the stock market. Trading will remain sentiment-driven and technical in nature today in absence of big eco data/events. - Currencies: Dollar keeps benefit of the doubt. Sterling drops below important support
EUR/USD declined on a soft ZEW confidence while US retail sales printed strong. Fed’s Powell confirming the case for a July rate cut had less impact on the dollar than on US yields. Today, data will probably be of second tier significance for FX trading. EUR/USD 1.1181 remains a key support. Sterling is losing further ground as Brexit fears are mounting further
The Sunrise Headlines
- Wall Street closed a choppy session in red after US president Trump raised the tariff threat again. The Nasdaq underperformed (-0.43%). Asian markets are trading mixed with Korea (up to -1.8%) underperforming.
- President Trump said they “have a long way to go” on trade with China, adding he could still impose additional tariffs on $325 bn worth of Chinese imports although agreeing not to do so during the G20-summit in late-June.
- Powell said the Fed still expects solid growth but “carefully monitors” downside risks. He added that some FOMC members flagged concerns about a longer lasting inflation shortfall, echoing his congressional testimony last week.
- The European Parliament confirmed Germany’s Ursula von der Leyen as next president of the European Commission with a narrow majority of 9 votes. She now faces the task to assemble a balanced college of commissioners.
- PM candidate Boris Johnson wants to hold an early general election, according to The Times. Senior allies of Johnson told the newspaper he wants to benefit from the division within the Labour Party.
- The US and Japan might thrash out a trade deal by September that would give the US agriculture a better access to the market in return for reduced tariffs on Japanese cars, industry sources said.
- Today’s event calendar contains US housing data and inflation figures in the UK. The Fed releases its Beige Book. G7 finance ministers and central bank heads meet. The fist high-profile non-bank earnings are due. Germany issues bonds.
Currencies: Dollar Keeps Benefit Of The Doubt. Sterling Drops Below Important Support
Sterling drops below important technical levels
End week and on Monday, EUR/USD failed to take out first resistance near 1.1285 even as Fed’s Powell kept the door open for a July rate cut. Yesterday, EUR/USD declined further in the 1.12 figure. The move was partially dollar strength supported by solid US retail sales. A pinch of euro weakness was also in play as German ZEW confidence disappointed again. Late in the session, US yields reversed most intra-day gains as Fed’s Powell reiterated its dovish message from last week. Still the dollar maintained most gains. EUR/USD closed at 1.1211 (from 1.1258). USD/JPY held north of 108 to close at 108.25 (from
107.91)
This morning, Asian equities mostly show modest losses, in line with WS yesterday. Trade tensions resurfaced as a (minor?) factor for trading as US president Trump reiterated the US can still impose tariffs on $ 325 bln of Chinese goods. The direct impact on the dollar is limited. EUR/USD hovers in the 1.1210/15 area. USD/JPY is losing marginal ground (108.15 area). USD/CNY
is still going nowhere (6.88 area).
The eco calendar is only moderately interesting today with the final EMU CPI’s (expected 1.2% headline, 1.1% Core). In the US, housing starts and permits will be published. US housing data recently had only a limited impact on FX. There is a slight chance of a upward revision to the EMU CPI, but it probably won’t change fortunes for the euro in a profound way. The global risk sentiment looks like easing a bit as the record rally of US equities ran into resistance yesterday. If this would lead to lower core yields it might be a slight USD negative. Still, we see no big case for EUR/USD to break out of the 1.1285/1.1181 ST range. Global picture: EUR/USD drifted lower in the 1.11/1.14 range but rebounded from recent lows after Powell paved the way for a July rate cut. A rebound to the 1.13 would further ease the downside momentum. With the most important eco data before the FOMC July meeting printed, we expect more range trang
near current levels.
Sterling declined further as both candidates to become UK PM hardened their stance for talks with the EU. EUR/GBP settled north of 0.90. Cable dropped below the 1.2440 support. Brexit remains key for sterling trading, but UK CPI data are interesting, too. Headline CPI is expected unchanged at 2.0% (core to rise to 1.8%). CPI’s probably won’t change markets’ view that the BoE will likely be forced to cut rates due to the growing negative impact of Brexit on the UK economy. Sterling probably remains in the defensive. EUR/GBP 0.91 area is the next key reference.
EUR/USD nears 1.1181 support area
