Rates: Event risk takes over from eco data
Overnight risk sentiment is rather constructive despite conflicting signals/actions from the US and China ahead of Thursday’s trade talks. Greece’s syndicated tap of the Mar2029 bond will grab the necessary media coverage. Speeches by US central bankers, including Fed Chair Powell after EU close, are wildcards for trading.
Currencies: EUR/USD nears 1.1020 trend line. Preparing a ‘real’ test?
Of late, the dollar showed a mixed picture in the wake of softer US data. USD/JPY remains well bid. EUR/USD is trading off recent lows, but failed to regain any important technical level. Rather soft data and positive headlines on the US-China trade talks might help to trigger a test of the incoming trendline at 1.1020
The Sunrise Headlines
- WS ended a choppy session in the red yesterday (-0.45%). Overnight sentiment got a boost following the confirmation from China about its delegation heading for trade talks. Asian markets rose, with Korea (+1.2%) outperforming.
- The Caixin PMI Composite for September increases to 51.9 from 51.6 in August. Although the headline PMI Services declined (51.3 from 52.1), the details showed employment gains and increased new orders.
- Poland’s ruling Law & Justice government vows to nearly double the minimum wage in the wake of upcoming elections on October 13. The party’s leaders claim this will provide a fairer deal for Poland’s workers.
- World Bank President Malpass warned that global economic growth could fall short of the 2.6% June forecast amid Brexit uncertainty, trade tensions and a downturn in Europe. The IMF has also indicated a likely downward revision.
- According to a text message from one of Jonhson’s officials, Boris Johnson is preparing for Brexit talks to end this week by aiming to get an EU country to veto a Brexit delay, Specator reported.
- Washington blacklisted 8 Chinese companies over human right violations against Muslim minorities in Xinjang. The move comes at a critical time and could deepen divisions between US-China ahead of this week’s trade talks.
- Today’s economic calendar schedules key ECB speakers and a speech by the Fed’s Powell. Markets will closely listen for important highlights about the US/Sino trade talks
Currencies: EUR/USD Nears 1.1020 Trend Line. Preparing A ‘Real’ Test?
EUR/USD 1.1020 trendline within reach
In line with most other markets, EUR/USD developed an inconclusive trading pattern yesterday. Poor German factory orders and uncertainty ahead of the restart of the US China trade talks later this week, pushed EUR/USD lower in the 1.0955/1.10 ST consolation pattern. EUR/USD captured a better bid later, but there was no strong enough driver to push the pair for a real test of the 1.10/1.1025 resistance. The pair closed at 1.0971. USD/JPY regained the 107 barrier, supported by a rise in core/US yields to close at 107.26.
Overnight, global markets see the glass rather half full than half empty. Without much concrete news, investors apparently turned a bit more constructive on the chances for a (limited) US-China trade deal. Core yield continue their gradual rebound. USD/JPY (107.40 area) remains well bid. The yuan also strengthens (USD/CNY 7.1270). EUR/USD is little changed (1.0975).
The calendar contains German August industrial production, US NFIB small business confidence and the US PPI’s. NFIB confidence is expected to show a further loss of momentum. Core US PPI is seen little changed at 2.3%. We expect any USD reaction to be of intraday significance at best. ECB and Fed speakers (including Chair Powell) are a wildcard and so are headlines on the US-China trade talks.
Last week, the dollar eased off recent tops after poor US ISM’s and a loss of interest rate support. Still, USD losses against the euro stayed modest as the eco picture hampers any sustained euro gains. Markets anticipate further Fed easing this and next year, but for now, this isn’t enough to trigger outright further USD losses. EUR/USD is trading off recent low (1.0879) but is holding below the trendline (today near 1.1020). More soft US data and/or more outspoken ‘engagement’ of the Fed is probably needed for sustained EUR/USD gains. A constructive outcome of the trade talks might be a tentative euro positive, too.
EUR/GBP traded with a tentative positive bias yesterday as the political arm wrestling on Brexit between the UK and the EU continues. Still there were no signs of any progress yet. Some headlines suggest that also the Johnson administration is preparing for a delay, but it’s nothing more than rumours. More technical trading in the 0.89 area might on the cards until there is some ‘real new news’ on Brexit
EUR/USD holding near 1.1020 trend line. Preparing a new test?
