Rates: Trump’s verdict on JCPOA throws shadow over trading
Core bonds traded sideways yesterday and that could remain so today. Heavy supply is negative, but could be balanced by uncertainty on the outcome of tonight’s verdict by US President Trump on the Iranian nuclear accord. Rumours suggest he’ll extend the negotiation period, but Trump has proven in the past that nothing can be taken for granted.
Currencies: USD rally slows as markets await US decision on Iran deal
The dollar maintained a cautiously positive momentum yesterday, especially against the euro. Today’s eco calendar is thin. (FX) Markets await the US decision on the Iran deal. Several options are possible, but we assume that the outcome might leave the USD positive momentum intact.
The Sunrise Headlines
- US stock markets gained around 0.35% with Nasdaq outperforming (+1%) led by Apple. Asian stock markets trade positive as well this morning with China profiting (+1%) from strong trade data.
- US President Trump said he would announce today his decision on the landmark Iran nuclear accord that he has repeatedly condemned. Some European officials suggest he would leave more time for negotiations. (WSJ)
- Richmond Fed Barkin, 2018 voter, says US monetary policy is still accommodative and “it is hard to argue that accommodation is appropriate when unemployment is low and inflation is effectively at our target.” (BB)
- The ECB is likely to move over the summer to gradually phase out its bond-buying program, perhaps announcing a decision after its July 26 policy meeting, ECB Smets said. (WSJ)
- China’s exports rebounded more strongly than expected in April (12.9% Y/Y), suggesting global demand remains relatively resilient and providing a cushion to the economy amid a heated trade dispute with the US. (Reuters
- Australian retail sales were unchanged and below consensus (0.2% M/M) in March as a rise for food sales was offset by falls in other industries. AUD/USD slid back below the 0.75 mark. (FT)
- Today’s eco calendar contains US NFIB Small Business Optimism and German industrial production data. Fed Powell and ECB Liikanen speak. The Netherlands, Austria, Germany and the US tap the bond market
Currencies: USD Rally Slows As Markets Await US Decision On Iran Deal
USD rally slows as markets await US Iran decision
In line with end last week, some ‘by default USD buying’ continued yesterday. EUR/USD dropped below the 1.1915/35 support and filled bids near 1.19, but there were no sustained follow-through gains. Dollar strength prevailed, but the news flow was also tentatively euro negative (disappointing German factory orders; risk of new elections in Italy). USD/JPY rebounded to the 109.40 area, but eased later in the session. EUR/USD closed the day at 1.1922. USD/JPY finished at 109.09. In the end, there was too little news to inspire a clear direction move.
Overnight, Asian equities mostly show solid gains. Chinese foreign trade data were strong (a big rise both in imports and exports). The politically sensitive surplus with the US also widened sharply. For now, we see little direct impact on FX. Oil stabilizes off recent highs as markets await US president Trump’s decision on the nuclear deal with Iran. The impact from the oil price on the dollar remains modest for now. The Aussie dollar fell back to AUD/USD 0.75 on disappointing Australian retail sales.
Today, the eco calendar again only contains second tier eco data in the US and in Europe. Markets might give some more attention to the German production after recent poor EMU data. More disappointing news might weigh on the euro. Yesterday, Fed comments tilted to the hawkish side, but with no big impact on the dollar. Markets will look forward to decision of President Trump on the nuclear deal with Iran. Several options area open (from the US leaving the deal to some kind of ‘kicking the can down the road’ scenario). The recent rise of the oil price suggests that, at least the oil market already discounts quite a hawkish US approach. We hold the working hypotheses that the US Iran decision won’t derail USD positive momentum. If EUR/USD breaks below 1.19, next high profile support comes in in the low 1.17 area. USD/JPY underperforms USD/EUR and this might continue to be the case.
Yesterday, EUR/GBP declined off Friday’s correction top, mostly on euro weakness. The pair closed the session at 0.8794. Today, the UK eco calendar is also thin. The UK political debate on Brexit continues (Vote in the House of Lords). Markets are also couting down to the BoE policy decision on Thursday. The ‘bad news’ (no rate hike this week) is probably discounted. Even with no rate hike, the BoE might maintain a moderately hawkish tone. If so, it might be a (temporary) supportive for sterling. Combined with euro softness. EUR/GBP might drift a bit further south in the 0.87 big figure going into the BoE policy decission
EUR/USD downside pressure persists
