Rates: Technically driven trading in absence of data/events
Today’s eco calendar is empty apart from German ZEW investor sentiment which probably won’t impact trading. We expect market action to be sentiment-driven and technically in nature. The start of the US’s mid-month refinancing operation could cause an underperformance of US Treasuries.
Currencies: Euro sentiment improves, at least temporary
The dollar reversed most of its post-payrolls gains yesterday. EUR/USD returned to the 1.16 area. A constructive risk sentiment blocked further USD gains. The euro was supported as investors turn less negative on Italian assets. Sterling continues to profit from market hopes on a brexit deal in a not-that-distant future.
The Sunrise Headlines
- US equity markets were mixed on Monday, with DOW JONES (-0.23%) underperforming. Asian markets opened mixed this morning, with China back in green but Japan and Korea outperforming. Others show small losses.
- North Korean leader Kim Jong Un has invited US President Trump for another meeting in a “very warm, positive letter’. US officials said they started planning a 2nd summit to follow-up on the denuclearisation pledge that was made in June.
- Canada’s foreign minister Freeland arrives in Washington later today to start a fresh round of trade talks with US trade representative Lighthizer to reach a deal on Nafta, while Mexico said to be open to sign a bilateral deal with the US.
- That same Lighthizer, US trade representative, said that a partial trade deal with the EU could be reached as early as November. The comments were made after a Brussels meeting with EU trade commissioner Malmstrom yesterday.
- Tory Eurosceptics have failed to publish a detailed blueprint for the UK-EU future relationship. Their ‘Brexit plan B’, as an alternative to May’s ‘Chequers plan’, could not unify the Eurosceptics, leaving hope for the PM’s proposal.
- Presidents of China and Rusland, Xi Jinping and Vladimir Putin, will meet today at the Eastern Economic Forum. The pair may discuss North-Korea. Putin’s discussion yesterday with Japanese PM Abe produced no breakthroughs.
- Today’s US eco calendar is rather dull, with only the secondary eco data in the US and the labour data in the UK. In Germany, the ZEW investor Survey of economic sentiment will be published
Currencies: Euro Sentiment Improves, At Least Temporary
Sentiment on the euro improves (slightly)
On Monday, the dollar failed to extend its post-payrolls’ gain. EUR/USD touched minor low in the 1.1525/30 area early in Europe, but this first support held. Risk sentiment improved as investors turned less negative on Italian assets. This supported the euro and prevent further USD gains. Later, the euro extended gains as EU’s Barnier saw a good chance for a brexit deal in the next 6-to-8 weeks. EUR/USD (temporarily?) regained 1.16 and closed at 1.1594, reversing most of the post-payrolls’ rebound. USD/JPY profited slightly from the constructive risk sentiment and finished at 111.13. Overnight, Asian equities mostly show modest gains. EM stress and US/China trade tensions are moving to background, at least temporary. Most EM currencies that suffered of late are stabilizing. The Russian rouble underperforms as government officials try to convince the central bank to be cautious on hiking rates. EUR/USD is holding near 1.16. The yen eases slightly as risk sentiment improves. USD/JPY rebounded to the mid 111 area. Today, the eco calendar in the Europe and the US is thin. German ZEW sentiment is expected stable after recent declines. US NFIB small business confidence is expected to hold near record levels. Of late, the USD showed no clear trend. The US currency profited only modestly from good US data. A flaring up of trade tensions or EM stress was also only a temporary support. ST term, EUR/USD is blocked in a tight 1.1520/ 1.1750 consolidation pattern. For now, we see no trigger to unlock this stalemate Short term. A new flaring up in the trade tensions remains a wild card. However, even in this case a sustained USD rebound isn’t guaranteed.
Last week, markets saw some tentative signs that the EU and the UK might come closer to a brexit deal supporting sterling. This pattern continued yesterday, as EU’s Barnier saw a brexit deal possible within 8 weeks. EUR/GBP dropped to the 0.89 area. UK eco data were constructive too. Toda, the UK labour market data take centre stage. Job growth is expected soft and wage growth (ex-bonus) is seen at 2.8%. A positive surprise might fit in recent sterling constructive momentum. That said, brexit headlines probably will continue to dominate sterling trading. Over the previous days, markets saw the brexit-glass half-full, but this can still change. We maintain to view that ‘real’ brexit progress is needed to justify a sustained comeback of sterling.
EUR/USD going nowhere, holding established consolidation pattern
