- Rates: Backloaded US eco calendar key this week
Trading conditions will be thin today with US investors enjoying Labor Day holiday and with the EMU calendar empty apart from final PMI’s. Focus turns to the US this week with key eco releases (ISM’s, ADP, payrolls) and a speech by Fed chair Powell on Friday. Asian risk sentiment is gently positive. - Currencies: EUR/USD drop below 1.10 mark
EUR/USD already traded with a tentative negative bias for some time. This process accelerated on Friday as the pair broke below the 1.1027 support late on Friday. For now the eco and geopolitical narrative remains euro negative as markets anticipate aggressive ECB action later this month. Brexit and trade tensions also won’t help the euro short term.
The Sunrise Headlines
- Wall Street opened strong on Friday but wiped out gains shortly after. The Nasdaq (-0.13%) underperformed. Asian stocks are trading mixed. China (up to 1.7%) outperforms after slightly better than expected PMI’s this morning.
- A new round of tariffs announced kicked in on September 1. The US hits some Chinese imports worth $110 bn with a 15% levy. China retaliated by slapping tariffs on $75 bn of US goods.
- The German AfD surged after elections held in Saxony and Brandenburg. However, the ruling coalitions (resp. CDU/SPD and SPD/Die Linke) will probably cling on to power but it will require the support of the Greens.
- Argentina imposed currency controls to stop the outflow of dollars. There’s a deadline set for exporters to repatriate foreign currency while institutions will need governmental authorization to sell pesos in the market.
- UK’s PM Johnson said he would throw out any Tory rebel that would not back him in a key vote tomorrow. Doing so would erode the majority and increases odds of elections. The Labour led vote aims to prevent a no-deal.
- Spain’s acting PM Sanchez will present Podemos a new program tomorrow in a last attempt to form a government and avoid an election redo. He has until Sep. 23 to get parliamentary backing. If he fails, new elections are due on Nov. 10.
- Today’s economic calendar won’t inspire markets. The US is closed in observance of Labour Day. Final EMU PMI’s are due. ECB’s Mersch and Rehn are scheduled to speak but probably won’t touch monetary policy.
Currencies: EUR/USD Drop Below 1.10 Mark
EUR/USD breaks to new 2019 low
EUR/USD kept its downside bias last Friday. Soft EMU inflation supported speculation for substantial ECB easing later this month. US president Trump tweeted that the euro was dropping against the dollar ‘like crazy’ and again accused the Fed of doing nothing. His comments didn’t help the euro. The EUR/USD decline even accelerated as the 1.1027 early August low was broken. The pair closed at 1.0982 (from 1.1057). USD/JPY (106.28) showed no clear trend as the risk rally faded.
Asian equities are trading mixed this morning after new US tariffs on Chinese goods kicked in. Chinese indices outperform, maybe as Chinese PMI’s show tentative signs of bottoming. The yuan weakens further (USD/CNY 7.1610). The yen slightly outperforms (USD/JPY 106.15/20 area). EUR/USD stabilized (1.0990 area) after Friday’s break lower. Trading volumes in the major FX cross rate might be low later today as US markets are closed for Labor Day. Final EMU August manufacturing PMI probably won’t change euro positioning.
Currency investors will closely watch key US data (ISM’s, ADP, Payrolls) later this week. Several ECB and Fed members will also speak as markets are looking for guidance on both central bank decisions later this month. At least for now, EUR/USD positioning anticipates the ECB to take a more aggressive approach compared to the Fed. Ongoing trade tensions are at least as negative for the euro as for the dollar. Brexit uncertainty is also euro negative. We are not convinced that the ECB will (be able) to meet aggressive market expectations. Even so, the overall eco and (geo)political narrative is going against the single currency. So, there is no reason to fight the established negative trend short term. EUR/USD 1.0821/1.0778 (gap April 2017) is next support on the technical charts.
EUR/GBP on Friday continued the consolidation pattern that started after PM Johnson decided to suspend Parliament. EUR/GBP later declined in line with EUR/USD. This week is key for the fate of UK PM Johnson and for the Brexit process as PM’s opponents will try to prevent a no-deal Brexit. The outcome of this process remains highly binary and several unexpected twists might occur (Election? When?). Sterling showed quite resilient last week and this might remain the case if there are no further concrete indications that the political process will undoubtably result in a chaotic exit of the UK out of the EU.
EUR/USD drops below 1.10 mark as investors continue to anticipate aggressive ECB easing
