- Rates: Core bonds end three-day slide
Core bonds gained some modest ground yesterday. The risk rally on stock markets slowed near recent highs on rumours that signing the phase 1 trade deal would be pushed to December. Lower oil prices played a role as well while a strong 10-yr Note auction caused some outperformance of US Treasuries. Today’s eco/event calendar remains thin. - Currencies: EUR/USD slips below 1.1065 support
EUR/USD was unmoved yesterday, looking for guidance. The couple eventually closed near the key 1.1065 support. The current mild risk-off results in a tentative break of that level and might keep the euro further in the defensive today. We keep a close eye on the Bank of England. Will Carney complete its U-turn to an easing bias?
The Sunrise Headlines
- WS struggled for momentum and traded near flat (up to -0.29%) as news on the trade front deflated optimism. Asian markets are trading mixed, with India underperforming (-1.32%).
- The US-China long-awaited phase 1 deal hit a new roadblock as a report from Reuters said a meeting between US president Trump and his Chinese counterpart Jinping, could be delayed until December.
- BoJ governor Kuroda said today that the central bank would continue its massive monetary easing to achieve its 2% inflation target while adding that “it’s natural for monetary and fiscal policies to work as one”.
- The NBP kept its policy rate unchanged yesterday and signalled that rates will remain unchanged for a while. Despite the global economic slowdown, the Polish economy grows at a healthy pace and does not require more stimulus.
- Capital rushed out of the Brazilian Real with USD/BRL spiking over 2% after news broke that Brazil’s oil auction failed to generate the level of excitement analysts had forecasted.
- Germany’s manufacturing sector continues to sputter. Industrial production fell 0.6% (m/m) in September (consensus at -0.4%). Once a huge source of strength, industry has become a key vulnerability to the German economy.
- Today’s economic calendar will be centred around the BoE’s rate decision. Markets are focused on how the BoE will respond to Brexit uncertainties. The EU Commission will publish its economic forecasts. US taps the bond market
Currencies: EUR/USD Slips Below 1.1065 Support
EUR/USD slips below 1.1065 support
The risk rally stalled yesterday with news flow very thin and markets awaiting more clues from trade. German factory orders surprised on the upside but had little to no direct market impact. The same goes for slightly better than expected final EMU PMI’s. Headlines that the partial trade deal might not be signed until December as a new location is still under discussion triggered knee jerk losses in US stock markets and yields. Both later recovered however. EUR/USD initially held an upward bias but clearly lacked momentum. The couple eventually closed marginally lower at key support around 1.1065/75 (1.1066 from 1.1075). USD/JPY closed shy of 109 (108.98 from 109.16).
Recent trade optimism also fades during Asian trading hours. Equity markets are trading mixed, at best, amid very scant news and data. The Chinese yuan is giving up on recent gains which drove USD/CNY back below 7. A cautious risk sentiment is sending the yen deeper below USD/JPY 109 (108.73 at the time of writing). Kuroda said the BoJ will continue with massive monetary easing to reach the 2% inflation target. The yen isn’t really impressed though. EUR/USD, currently trading at 1.106, slipped below 1.1065 support.
Today’s European Commission’s autumn economic forecasts are worth mentioning. However, the remainder of the eco calendar won’t be of any importance for markets, leaving trading mostly up to technical factors. This morning’s break of EUR/USD 1.1065 following the possible delay in the partial deal suggest the euro is more vulnerable to trade developments. We don’t draw any firm conclusions as the break has yet to be confirmed but this move at least questions the short term upward bias of the couple. In combination with a mild risk off, it might keep the euro further in the defensive.
Sterling trading was mainly technical in nature yesterday while the UK election campaign kicked off. EUR/GBP held an upward bias, closing at 0.861. The Bank of England is convening today and publishes a new inflation report. We’re keen to see whether the central bank will complete it’s U-turn to an easing bias. Doing so might add pressure on sterling in a daily perspective. We don’t expect any significant moves however. EUR/GBP is likely to be trapped in its sideways trend channel as markets await the outcome of the elections
EUR/USD slips below key support at 1.1065, questioning the short term upward bias if break gets confirmed
