- Rates: US markets closed for Martin Luther King Day
Trading could resemble last Friday’s inaction given the absence of US traders and lacking impetus from the EMU eco calendar. Expect low-volume, erratic action within known technical ranges. Attention shifts to central bank meetings, including ECB, and global PMI’s later this week. - Currencies: Dollar holding strong in low volatility environment
The dollar rebounded further last Friday after a soft start last week. Solid US eco data suggest that the dollar will keep a comfortable interest rate support. A low-volatility context keeps USD long carry trades against the likes of the euro and the yen attractive. Sterling stays resilient despite ongoing poor UK eco data.
The Sunrise Headlines
- US stocks closed last week with new record highs for all major indices. The S&P (+0.39%) outperformed. Asian markets trade mixed across the region. Japan (+0.6%) outperforms, Hong Kong (-0.6%) is lagging.
- A period of relative calm in Hong Kong ended yesterday. A rally in the city centre escalated into clashes in which local police officers were injured after they ordered the march to end.
- Oil prices jump this morning (Brent $65/b) after Iraq paused output at an oil field on Sunday amid rising social unrest while armed forces in Libya blocked oil exports at ports under their control following the declaration of force majeure.
- IMF chief Georgieva said the US/Sino Phase 1 trade agreement will reduce but not eliminate uncertainty. She expects a downward pressure on investment to persist. The IMF’s World Economic Outlook will be published in Davos today.
- Japanese PM Abe eased rhetoric towards South Korea in a new sign the row over compensating wartime forced SK laborers might be coming to an end. Abe urged to build future-oriented relations with its “most important neighbor”.
- UK Chancellor of the Exchequer Javid suggested post-Brexit ties with the EU will be looser, saying there will be no alignment nor will they be in the single market or a customs union. Meanwhile, trade talks with the US are sped up.
- Today’s economic calendar eyes rather meagre. The US is closed for Martin Luther King Day and important events aren’t due until Thursday (ECB) and Friday (EMU PMI’s).
Currencies: Dollar Holding Strong In Low Volatility Environment
Dollar holding strong in low volatility context
The dollar rebounded further on Friday after a soft start earlier last week. US data on Thursday and Friday were solid, providing no need for the Fed to cut rates in the foreseeable future. So, the dollar will likely keep substantial interest rate support against the likes of the euro and the yen. In a low volatility context, the USD-long carry trade remains rewarding. EUR/USD slipped during the European session. Strong US housing starts pushed EUR/USD lower to the 1.11 area (close 1.1092). Gains in USD/JPY were modest given records of US equites. Even, so the pair held near multi-month highs just north of 110 (close 110.4).
Trading for the new week is taking a slow start. This morning’s moves are limited and under low volumes. Markets won’t get any guidance from US trading today. US markets are closed (Martin Luther King Day). The PBOC continues to add liquidity to the market ahead of the Lunar New Year. Even so, the yuan extends its rebound. USD/CNY (6.85 area) is trading at the lowest level since July last year. The yuan is still supported by the easing of US-China trade tensions. USD/JPY remains well bid (110.15/20 area) as are most Asian equities. EUR/USD hovers near 1.11.
Today’s calendar is empty. US markets are closed and there are no important data in EMU. Later this week, ZEW investor confidence (Tuesday) and the preliminary EMU PMI’s (Friday) will be published. The BoJ (tomorrow) and the ECB (Thursday) will decide on monetary policy. Global equity sentiment will be an important input for other markets as the (US) earnings season will come in full swing. For EUR/USD trading, we don’t see a trigger to push the pair out of the established ranges. EMU confidence data are expected to improve as global tensions ease but it will probably only provide limited support for the euro. From a technical point of view, EUR/USD continues to struggle to move away from the 1.1085/66 support. EUR/USD 1.1066 remains first downside reference. A rebound above 1.1180 would call off the ST downside alert, but even that looks difficult for now.
Sterling temporarily declined on Friday’s very weak UK retail sales. Still, sterling held resilient even as markets discount a high change for a January rate cut. Investors apparently still see better UK growth further out. During the weekend, there were several press articles, highlighting that the UK and EU are heading for tough trade negotiations. We don’t see much room for further sterling gains in the very near future. The UK PMI’s (Friday) are a next important reference.
EUR/USD: USD correction blocked on solid US eco data
