- Rates: Technical hurdles and ECB looming on horizon
Core bond sentiment remains negative, but the sell-off seems to be losing steam as the US 10-yr yield approaches key resistance levels slightly above the psychological 3% mark and with the ECB meeting looming on the horizon. - Currencies: USD maintains gain. EUR/USD is nearing MT range bottom
The dollar remained well bid yesterday, supported by higher yields. German IFO confidence and US consumer confidence take center stage today. However, both series probably won’t change the balance between the euro and the dollar. The dollar rebound might slow at least temporary as the rise in US yields slows
The Sunrise Headlines
- US stock markets ended nearly unchanged with Nasdaq slightly lower (-0.25%). Asian equity indices are stronger this morning with China outperforming (+2%), anticipating policy measures to boost liquidity and improve growth.
- Australian CPI stayed soft last quarter as core inflation (slightly higher than forecast) began a third year below the central bank’s target, cementing expectations any hike in interest rates is a long distance off. (Reuters)
- Italian President Mattarella asked lower house Speaker Fico to find out whether the anti-establishment Five Star Movement could govern with the center-left Democratic Party, in the latest attempt to break a seven-week impasse. (BB)
- Strong growth in ad sales on Google search and YouTube were not enough to offset a surge in costs at parent Alphabet that shrank the first-quarter operating margin, leaving shares flat after hours. (Reuters)
- Liquidity tensions from last week will likely be eased as RRR cut to take effect while fiscal spending will increase this week, according to a front-page commentary in China Securities Journal. (BB)
- A US Senate committee endorsed Mike Pompeo to be the next secretary of state, sending him to the full Senate for his expected confirmation, after Sen. Rand Paul reversed himself and withdrew his opposition. (WSJ)
- Today’s eco calendar contains German Ifo business sentiment, US new home sales, consumer confidence and Richmond Fed manufacturing index. Italy, Germany, Finland and the US tap the bond market.
Currencies: USD Maintains Gain. EUR/USD Is Nearing MT Range Bottom
EUR/USD 1.2155 support coming with reach?
The USD rebound continued yesterday. It was supported by a gradual further rise in US yields with the 10-y yield nearing the 3% barrier. The EMU April PMI’s were slightly above consensus. However, they were not really able to remove the feeling that the EMU growth momentum might be over its peak. Markets apparently assume that the assessment at Thursday’s ECB meeting might remain rather soft. EUR/USD drifted below intermediate support at 1.2215 (close at 1.2209). USD/JPY also succeeded a nice break higher and closed the session at 108.71.
Overnight, Asian equities mostly show good gains with Taiwan and Korea underperforming. China outperforms as markets expect the Chinese authorities to keep a rather easy policy in place. The dollar maintains yesterday’s gains, but for now there is no follow-through. EUR/USD is holding in the low 1.22 area. USD/JPY hovers in the 108.75 area. Australian CPI inflation was close to expectations. Headline inflation was unchanged at 1.9% Y/Y (2.0% expected). AUD/USD slipped temporary to the 0.7580 area, but soon returned to the 0.76 area.
Today, in Europe several national confidence indices (including the IFO) will be published. IFO confidence is expected to rebound from 103.2 to 104.7. In the US, housing data, the Richmond manufacturing index and consumer confidence will be published. The latter is probably most important for markets. The headline confidence is expected to ease slightly from a multi-year peak. Over the previous days, the dollar finally profited from higher US yields with the 2-yr USD /German spread widening above 300 bp. Markets keep a close eye whether US 10-y yield might rise above 3%. The test is ongoing, but maybe there won’t be trigger for a break anytime soon. If so, this might slow the USD rise with markets awaiting Thursday’s ECB meeting. A soft ECB assessment might be needed to push EUR/USD below the 1.2155 support.
Yesterday, EUR/GBP basically held a consolidation pattern in the mid 0.87 area as the post-Carney correction slowed. There was also again plenty of noise on Brexit as the poltical debate inside the UK is heating up. Today, CBI business optimism and trends orders will be published. We expect these data to be only of intraday significance. The sterling decline slowed with EUR/GBP holding below the 0.88 resistance. Some consolidation might be on the cards. Friday’s UK Q1 GDP data are a potential next reference. Brexit noise remains a wildcard
EUR/USD: nearing/testing first support area at 1.2215/1.2155
