Rates: Gentle improvement in risk sentiment
Risk sentiment improved overnight with Asian stocks rebounding and the US note future and Japanese yen losing the past two days’ momentum. Central bankers aren’t expected to provide new insights in Sintra following last week’s key decisions. The eco calendar is empty, suggesting risk sentiment will remain in the driver seat.
Currencies: EUR/USD holding near recent lows even as global tensions ease
Yesterday, FX markets were also affected by the trade-driven global risk-off trade. EUR/JPY, USD/JPY and EUR/USD all closed the session lower. This morning, it looks that trade tensions are easing. USD/JPY rebounds, but the upside in EUR/USD looks less easy. Sterling remains in the defensive ahead of a key Brexit vote in Parliament this afternoon.
The Sunrise Headlines
- The US equity markets continue to lose with the trade war still in play, with S&P500 losing all gains it made in 2018. The Asian markets opened rather positive, with only Chinese markets in red.
- Iran has indicated it will oppose Saudi Arabia and Russia, who want to leave the current deal of ’16 to increase total output and thereby pleasing the US. Iran stated ‘OPEC should not receive any instructions of the US’.
- In the UK, the House of Commons will vote today on the ‘meaningful vote’, after the House of Lords had rejected PM May’s proposal on Monday. Today’s vote can shape UK strategy for brexit and is expected to be a very close call.
- Russia has joined the trade debate and will impose import tariffs on certain goods from the US. The move follows a request from Russian businesses that were hit by US tariffs on steel and aluminium.
- Merkel and Macron have found common ground on the President’s proposal to reform the Eurozone’s budget. They left details open for discussion at the EU summit later this month. Both hailed ‘a new chapter’ for the currency union.
- A rare positive statement on international trade was made by President Trump yesterday saying progress was made in talks to update the NAFTA agreement. A deal between the US, Canada and Mexico, however, is not yet on the horizon.
- A skinny economic calendar for today, keeping the ECB’s Forum in Sintra in the spotlight. Draghi will have discussions with his colleagues from the US (Fed gov. Powell), Japan (BOJ gov. Kuroda) and Australia (RBA gov. Lowe).
Currencies: EUR/USD Holding Near Recent Lows Even As Global Tensions Ease
EUR/USD holding near recent correction low
Contrary to what was the case of late, the trade war also affected global FX trading yesterday. Risk-off triggered broad yen-buying resulting in a decline of USD/JPY, EUR/JPY and via the crosses also of EUR/USD. Soft ECB comments at in Sintra reinforced the euro decline. Selling eased later but the three cross rates still finished in negative territory. EUR/USD closed at 1.1590 (from 1.1623). USD/JPY closed at 110.06 (from 110.55). The risk-off modus weighed on smaller, less liquid currencies like the CAD and the Aussie dollar and smaller currencies on boundaries of the euro zone (SEK, PLN, CZK and to a lesser extent NOK). This morning, Asian are rebounding off the recent lows, with China still underperfoming. The jury is still out, but the direct impact from the trade-war might be easing. USD/JPY tries to regain the 110 mark. EUR/USD trades off recent lows, but the picture stays unconvincing (1.1575). The decline in likes of the Aussie dollar, which suffered from the trade conflict looks like slowing down.
Today, US data, including existing homes sales are only of second tier significance for FX trading. Fed’s Powell, BOJ’s Kuroda, ECB’s Draghi and other ECB members wil speak in Sintra. The question is whether markets will recover from yesterday’s risk-off trade. If so, USD/JPY might profit and it might pressure on some smaller currencies. It doesn’t feel that the euro is in pole-position to profit from easing tensions. Policy divergance between the Fed and the ECB as it appeared at last week’s policy meetings, hampers a euro rebound, even if risk sentiment improves. Of late, we advocated that a retest of the 1.1510 correction low is possible. We maintain that view. The dollar can stay strong for longer. In a day-to-day perspective, the pressure on USD/JPY might ease, at least until the next flairing up of (geopolitical) uncerainty.
Yesterday, Brexit uncertainty and a negative global risk sentiment weighed on the sterling. EUR/GBP trended higher in the 0.87 big figure. Cable set a new correction low below the 1.32 support. Today, the Lower House will to vote again on the ‘meaningful vote’. Even if May survives the vote, the domestic battle on Brexit won’t be over. It is also not clear that markets will consider a victory of the government as sterling supportive, as it raises the chance on Britain to crash out of the EU. We don’t preposition for a sustained sterling rebound yet. Tomorrow’s BoE assessment might also remain cautious and provide little support for sterling
EUR/USD: easing global tenisons might not be a big help for the euro
