Rates: Sideways consolidation ranges hold firm
Core bonds gained ground yesterday, but remain stuck within narrow sideways consolidation ranges. Today’s eco calendar is uneventful, suggesting risk sentiment or the dollar’s performance will affect core bonds gyrations. We don’t expect a change to the recent sideways trading pattern though. Low volume, summer trading conditions prevail.
Currencies: Trump comments on Fed block USD rebound
Yesterday, the dollar initially was in good shape. However, fortunes for the greenback changed after US president Trump criticized the Fed rate hikes. The dollar reversed earlier gains on the Trump’s remarks. Today, markets will ponder the LT impact of Trump’s comments. EUR/GBP is nearing the 0.8968 resistance area.
The Sunrise Headlines
- Yesterday, all major US stock indices lost ground. The Dow Jones underperformed (-0.53%). Asian markets are trading mixed. China outperforms, gaining up to 1.2% while Japan remains in the defensive (-0.5%).
- Breaking a White House tradition of avoiding monetary policy comments, president Trump criticised the Fed’s rate hikes. “I’m not thrilled,” he said, “because we go up and every time you go up they want to raise rates again”.
- Amidst rising concerns about what the two leaders were discussing in Helsinki, president Trump invited his Russian colleague Putin for a second meeting.
- The Chinese yuan recovers from a slide after the country’s central bank weakened the fixing rate by 0.9%. Meanwhile, a PBOC official overnight said China’s debt increase now has stabilized under it deleveraging campaign.
- Japanese inflation remains modest in June as headline inflation stabilized at 0.7%. Core measures increased from 0.7% to 0.8% (ex food) but slowed from 0.3% to 0.2% (ex food and energy).
- Copper slumped as investor’s fears increase that the US-Chinese trade conflict escalates into a global trade war. After hitting a 4-yr high in June, copper lost considerable ground, now heading for the biggest losing streak since Nov2015.
- Today’s eco calendar is rather empty, containing only Canadian CPI and German PPI. Fed’s Bullard is scheduled to speak
Currencies: Trump Comments On Fed Block USD Rebound
Trump blocks USD rebound.
Yesterday, the dollar initially was in good shape. Positive comments from Fed’s Powell before Congress still supported the greenback. At the same time, a cautious risk sentiment and outflows away from EM currencies were also USD positive. US eco data were OK. EUR/USD fell temporarily below 1.16. USD/JPY tried to regain the 113 barrier. Later, president Trump changed fortunes for the USD as he criticised the Fed for raising interest rates. He also said that the strong dollar is putting the US in a disadvantage and referred to recent decline of the yuan. The US dollar reversed earlier gains. EUR/USD closed little changed at 1.1642. The decline of USD/JPY was more pronounced (close 112.47). Overnight, Asian equities opened soft, but sentiment improved later. The dollar shows somewhat of a diffuse picture in the wake of Trump’s comments. The dollar is losing further ground against the euro (EUR/USD 1.1665 area) and the yen (USD/JPY 112.25). At the same time, the PBOC fixed the yuan weaker against the dollar. USD/CNY traded temporarily north of 6.80, but CNY rebounded during the session.
Today, the calendar in the US and in EMU is very thin. Markets will make a second reading of the Trump comments trying to assess what it really means for the dollar. The Fed will stick to its independence. Even so, the comments question/weaken the institutional context that makes the dollar a safe haven store of value. We don’t draw firm conclusions from the Trump’s comments yet, but they might be a slightly negative for the USD ST. Earlier this week, USD momentum improved slightly, but yesterday’s price action suggest that a break below the 1.1510 range bottom won’t be easy. EUR/USD holds in the middle of the 1.1510/1.1850 range and will still see no trigger to break this stalemate. The USD/JPY rally is clearly losing momentum.
Yesterday, sterling remained in the defensive. The Brexit debate became less prominent. However, UK retail sales were slightly disappointing. Sterling lost slightly further ground. EUR/GBP closed the session at 0.8946. Today, the UK public finance data are no market mover. EUR/GBP is nearing first important resistance at 0.8968. A good reason for the sterling decline at least to take a breather?
EUR/USD: Trump comments block USD rebound
