- Rates: US and German 10-yr yield lured into resistance levels?
Core bond yield curves bear steepened yesterday without specific trigger. The German and US 10-yr yields might be lured into a test of nearby resistance levels, but a break seems unlikely at this stage without eg an improvement in eco data. Stock markets show some signs of fatigue even if underlying factors remain supportive. - Currencies: EUR/USD rejected back lower in established range after rejected 1.12 test
EUR/USD drifted lower in the 1.11 big figure despite a better than expected German IFO confidence. The return of a potential 2020 Brexit event risk dented euro optimism. The dollar profited from higher yields. We expect EUR/USD to stay in the established 1.10-12 trading range. Sterling found a new ST equilibrium after the post-election setback
The Sunrise Headlines
- US stocks traded directionless yesterday. Major indices closed largely unchanged. Asian markets took a more guarded approach with most equities dipping. Taiwan (-0.9%) underperforms.
- New Zealand Q3 GDP rose 0.7% q/q (0.5% expected), on stronger household spending and expanding manufacturing and construction. Q2 growth was revised downward to 0.1% q/q (from 0.5%) however. NZD/USD is unchanged.
- The House impeached US president Trump during a vote yesterday that was supported by all Democrats but not one Republican. Early next year a trial will be held in the Senate. The required two-third majority is deemed unlikely.
- ECB officials said that growth of money in circulation has been a rather weak indicator of (future) inflation and suggested the central bank could abandon the so-called “monetary pillar” in its economic assessment.
- The Australian November labour market report beat expectations as employment grew with 39.9k jobs (15k expected). The unemployment rate unexpectedly dropped to 5.2% while the participation rate stabilized at 66%.
- The Bank of Japan held policy rates stable at -0.10% and kept forward guidance and its overall economic assessment unchanged. Recent developments in trade, Brexit and the expected impact from fiscal spending warrant a wait-and-see.
- Today’s economic calendar contains US weekly jobless claims, Philly Fed Business Outlook and UK retail sales. Monetary policy decision are due in the UK, Norway, Sweden and the Czech Republic.
Currencies: EUR/USD Rejected Back Lower In Established Range After Rejected 1.12 Test
EUR/USD drifting back lower in the 1.10-1.12 range
EUR/USD was in the defensive yesterday. We didn’t see a specific factor for the move. A topside test of 1.12 was rejected after the UK election. Fear that Brexit will remain a source of uncertainty for the EU economy dented euro optimism. A further rise in US yields yesterday supported the dollar. Ifo business sentiment improved more than expected but didn’t help the euro. EUR/USD closed at 1.1114 from 1.1150. USD/JPY also rebound intraday. The pair closed at 109.55. The 109.73/110 resistance area remained intact.
Asian equities trade with modest losses as investors ponder how much room there is to continue current rally. The Aussie dollar (AUD/USD 0.6875 area) rebounded after a solid labour report. New Zealand Q3 growth printed strong at 0.7% Q/Q, but the NZD gain (NZD/USD 0.6590) was modest as Q2 growth got downwardly revised. USD/JPY (109.60) is holding within reach of key resistance. The BoJ left policy unchanged. A fiscal package and easing global trade tensions should support the economy and allow the BoJ to save its few remain monetary bullets. EUR/USD gained a few ticks (1.1125/30). USD strength prevails.
There few EMU data today. The US Philly Fed business outlook and the jobless claims are only intraday significance. Global sentiment and technical considerations will probably guide global FX trading. Yesterday, the dollar outperformed on a higher yield. The ‘return of event risk’ weighed on the euro. We look out whether these trends continue.
Of late, EUR/USD settled in the higher part of the 1.10/1.12 range. However, the ‘return of Brexit’ made a break beyond 1.12 difficult. EUR/USD turned back lower in the 1.10/1.12 ST range. Yesterday, we turned neutral on EUR/USD. We keep that bias. The 1.1097 previous neckline marks ST support.
Sterling found a ST equilibrium yesterday. This week sterling reversed its post-election gain as PM Johnson said he was preparing legal action to prevent an extension of the Brexit transition period beyond end 2020, potentially installing a new Brexit cliff-edge. Both cable and EUR/GBP held very tight ranges yesterday. Today, UK retail sales will be published and the BOE announces its policy decision. Some BoE members might still vote for a rate cut, but the BoE will probably take time to assess recent Brexit developments. We stay neutral on sterling.
EUR/USD: returns in established range. Topside test rejected
