Rates: Trade optimism lifts risk sentiment
Investors turned more positive about US-Sino trade talks after US President Trump announced a meeting with Chinese VP Liu He today. The intraday core-bond sell-off accelerated. Medium-term established, sideways, ranges remain within place. Today’s eco calendar will again be overshadowed by discussions in Washington. Asian risk sentiment remains positive
Currencies: EUR/USD regains 1.10 barrier, but no acceleration yet.
EUR/USD and USD/JPY profited from a constructive atmosphere around the US-China trade talks. EUR/USD regained the 1.10 level. USD/JPY is testing the 108 area. Even so, gains in both cross rates aren’t exceptional. Even a positive outcome of the trade talks still contains mixed signals for USD trading. EUR/USD 1.1110 is next resistance.
The Sunrise Headlines
- WS closed higher (+0.64%, S&P) as markets took an optimistic stance on positive comments from the US-China trade talks. Asian markets join the risk-on trade, with Hongkong outperforming (+2.50%).
- Optimism grows as US president Trump said the first day of US-China trade negotiations went ‘very well’ and that he plans to meet with top Chinese negotiator, vice premier Liu He.
- Italy will start taxing digital companies including Facebook and Alphabet starting in January, following France with an initiative that has raised the prospect of US sanctions.
- Renewed hopes for a Brexit deal between the UK and the EU emerge after UK’s Boris Johnson and Irish Varadkar said they could see a pathway to a potential deal.
- US president Trump said the US has three options in dealing with Turkey’s incursion into Syria: send the American military back in, unleash punishing sanctions on Turkey if it acts ‘inhumanely’ or mediate between the two sides.
- The Romanian government collapsed yesterday after Social democrat prime minister Viorica Dancila lost a confidence vote in parliament, raising the prospect of prolonged political uncertainty.
- Today’s economic calendar schedules some Fed speakers. The preliminary University of Michigan consumer sentiment survey for October will be published. Italy taps the bond market
Currencies: Will Trade Talks Help EUR/USD To Break The 1.10 Barrier?
EUR/USD tries to hold north 1.10 barrier
EUR/USD finally regained the 1.10 barrier yesterday. After volatile trading in Asia, markets saw indications that the US and China were heading toward a (partial) trade agreement. The global risk-on move supported a congruent rise of EUR/USD, EUR/JPY and USD/JPY. During the day, the US-German interest rate differential narrowed further. The ECB minutes confirmed a highly divided MPC, raising the bar for further easing. Even so, EUR/USD gains stayed modest and there were few follow-through gains as the pair tested incoming trend line just north of 1.10. EUR/USD closed at 1.1005. USD/JPY finished the day at 107.98.
Overnight, Asian (equity) markets join the risk rally as comments from the USChina trade talks stay constructive. The yuan rebounds further (USD/CNY 7.1025). The Aussie dollar also outperforms (AUD/USD 0.6780). USD/JPY (108) and EUR/USD (1.1015/20) hardly makes any further headway on the positive trade story.
Today, the focus will stay on the US China trade talks. Eco data are scant. US Michigan consumer confidence may be of intraday significance for USD trading. Yesterday’s risk-on move triggered a substantial rise in core yields and supported equities. USD/JPY and EUR/USD succeeded decently, but no exceptional gains. A trade truce still contains conflicting drivers for EUR/USD. An agreement might provide some comfort for the export-reliant EMU economy. At the same time, it might also reduce the chance for further aggressive Fed easing. On the other hand, a currency clause in the trade agreement might be USD negative. After modest USD losses last week, EUR/USD is testing an incoming trendline near 1.1010. A sustained break would improve the ST picture/ease the downside bias. 1.1110 is the next reference on the charts. A further positive development regarding Brexit might help to build a floor for the euro.
After initial weakness, sterling jumped sharply higher yesterday as UK PM Johnson and Irish PM Varadkar after a meeting indicated that they still saw ways to reach a deal. EUR/GBP tumbled from the 0.90+ area to the 0.8830 area. Ongoing talks between the UK and the EU might still be considered as constructive and sterling supportive. However, for now, there are no details on how the issue of the Irish backstop might be solved. Concrete progress in this topic is probably needed to push EUR/GBP below the 0.8787 support
EUR/USD: tries to sustain above key trendline.
