Rates: Subdued core bond trading
Core bonds treaded water yesterday as risk tensions eased. Mixed US eco data, higher oil prices and comments by Atlanta Fed Bostic failed to inspire directional move. Trading settings remains the same today, suggesting more sideways range-bound action in core bonds.
Currencies: Technical trading prevails in major dollar
cross rates Yesterday, the dollar regained the benefit of the doubt. However, the moves in EUR/USD and USD/JPY were technically insignificant. Today, the eco data will probably only be of intraday significance. So more technical trading might be on the cards if there comes no important news on the trade sage. EUR/GBP is holding near the 0.88 mark
The Sunrise Headlines
- US equity markets got back on their feet after the hit on Monday, with all major indices gaining ground. Asian stock markets opened mixed this morning. Especially Chinese markets go deep in red.
- The renminbi continues to weaken, with USD/CNY passing the 6.6 level the first time since December. The PBoC is expected to want to avoid a ’15-’16 scenario, when yuan weakness weighted on financial stability.
- US President Trump has softened his stance in regard to restrictions on Chinese investments in the US. In contrast to a full restriction, he now indicates the Committee on Foreign Investments can retain threats to US security.
- Germany will raise the minimum wage with 4%, following the earlier pay rises in the low-wage economy. The above-inflation increase is part of a two-year proposal and will be ratified by the government in the coming months.
- In New Zealand there was a significant drop in business confidence (39% of companies that are pessimistic, from 27.2% last month), signalling a slowing economy. The New Zealand dollar fell to its lowest level in 2018.
- Chinese Industrial profit growth remained strong with 21.1% (YoY) in May, a bit down from the 21.9% in April, supported by a raise in producer prices that were lifted by an increase in oil prices and metals.
- The Durable Goods Orders are released in the US today. In EMU, M3 Money Supply (YoY) for May is published. In Czech Republic and New Zealand, central banks hold policy meetings deciding on its rates
Currencies: Technical Trading Prevails In Major Dollar Cross Rates
Technical trading prevails in major USD crosses
On Tuesday, EUR/USD failed to extend the rebound from the previous days. The pair tried a lacklustre attempt to stay north of 1.17, but dollar strength soon prevailed again. There was little high profile news to guide trading. US data (Richmond Fed and consumer confidence) were mixed. The risk-off trade due to trade tensions eased, but uncertainty on next developments remains high. EUR/USD closed at 1.1648. USD/JPY also rebounded in US trading to close the day just north of 110.
Overnight, Asian markets show agains a diffuse picture. Most markets are trading little changed. China continues to underperform. The yuan remains also under pressure even as the PBOC set a stronger daily fixing. The USD/JPY (110.00) and EUR/USD (1.1655) show no clear directional trend. Uncertainty on China also continues to weigh on the Aussie dollar (AUD/USD 0.7380). The kiwi dollar felt additional pressure from disappointing confidence indicators (NZD/USD 0.6820).
Today, the EMU money supply data will be published. In the US, the May advance trade balance and the durable goods orders will be published. The US trade deficit is expected to widen from $67.3 bln to 69 bln. Despite the ongoing trade war, the trade deficit data until now had only a limited impact on FX trading. We don’t expect that to change in a profound way. Maybe there is a slight asymmetrical risk (more impact of a poor figure). Headline US durable orders are expected to decline for the second month in a row (-1.0% from -1.6% M/M) but core measures (ex-transportation) should paint a more constructive picture. We don’t expect today’s data to bring a game-changer for FX trading. If there are no important new developments in the trade war sage, more technical trading might be on the cards. Yesterday’s price action suggests that any further euro gains are not that evident. The dollar retains the benefit of the doubt. EUR/USD might return lower in the 1.1510/1.1851 ST consolidation pattern. USD/JPY also shows no clear directional momentum at all.
Yesterday, EUR/GBP hovered close to, mostly slightly north of 0.88. In his appointment hearing, new MPC member Haskel warned on the risk of raising rate too early, suggesting he will join the dovish wing in the MPC. Today, the CBI retail data will be published. We don’t expect the data to really change the picture in favour of sterling. More sideways trading might be on the cards. The 0.8843 resistance is coming with reach.
EUR/USD: going nowhere as visibility on trade developments stays low
