- Rates: Balancing act for the ECB
EMU January PMI’s are expected to marginally rebound following last year’s nearly uninterrupted decline. We expect the ECB to keep policy unchanged without altering the risk outlook of the eco scenario. Hints on a new TLTRO would support risk sentiment. Otherwise, we think today’s overall reaction will be muted. - Currencies: EUR/USD traders are watching EMU PMI’s and ECB
Recent USD rebound ran into resistance yesterday as there was little news on pending topics that should guide FX trading. The EMU PMI’s might bottom today and we expect the ECB to keep a guarded positive assessment. Such a scenario shouldn’t be that negative for the euro. The sterling short-squeeze continues.
The Sunrise Headlines
- US stock indices ended yesterday’s choppy trading day with modest gains. The Dow Jones Index (+0.70%) outperformed. Asian equities hover between flat and +0.5% with South Korea being the regional winner (+1%)
- US House speaker (and Dem.) Pelosi blocked US President Trump’s State of the Union address. Trump said he’ll give it after the shutdown ends. The US Senate votes on two measures to end the shutdown today, both likely to fail.
- Venezuelan President Maduro is under pressure to step down as the US and other nations recognized opposition leader Juan Guaido as the country’s head of state, while thousands of Venezuelans are on the streets to protest Maduro.
- Australia added 21.6k jobs in Dec, pushing the unemployment rate to 5%, down from 5.1%. Next, a major Australian bank raised interest rates on variable home loans for owners/investors. The Aussie dollar loses on the news.
- German Economy Minister Altmaier and French EU Affairs Minister Loiseau officially said they wouldn’t oppose a request from the UK to extend the Brexit deadline, in a response to the growing support by MP’s for a ‘Brexit delay’.
- The Nikkei Japan PMI for manufacturers fell in January to 50.0, the turning point between an expansion and a contraction, and down from 52.6 a month before. The lowest reading since August 2016 confirms global growth concerns.
- The ECB and Norges bank meet today. Eco data include EMU January PMI’s and US weekly jobless claims. The EIA releases its 2019 energy outlook and France sells bonds.
Currencies: EUR/USD Traders Are Watching EMU PMI’s And ECB
EUR/USD traders are watching PMI’s and ECB
USD trading was still guided by technical considerations and by global sentiment yesterday. EUR/USD initially hovered in the mid 1.13 area but finally succeeded a modest gain to finish at 1.1381. US yields and the dollar initially rose on a good start of US equities, but momentum eased. USD traders were looking for news on the US-China trade talks, on a solution to the US government shutdown or at corporate earnings, but there was no important news on these themes to put the dollar on a directional trajectory. USD/JPY briefly tested the 110 mark, but couldn’t sustain the intraday uptick and closed little changed at 109.60.
Asian equities are mostly trading cautiously higher this morning as key topics are still pending. The Aussie dollar initially profited from solid labour data, but (more than) reversed the initial gain as a major local bank raised mortgage rates. This rise is causing uncertainty on spending power of highly indebted Australian consumers. AUD/USD dropped to the low 0.71 area. EUR/USD trades currently near 1.1375. USD/JPY is trading little changed near 109.60.
The focus for global (FX) trading will probably turn to EMU today, with the January PMI’s and the ECB policy meeting/press conference on the agenda. EMU PMI’s are expected to bottom at low levels after a steep decline in Q4. Draghi will probably acknowledge recent soft spot in the economy, but maintain the ECB’s assessment that conditions remain in place for inflation to move to target ‘over time’. If so, the EMU news shouldn’t be too bad for the euro. This week, EUR/USD settled again in the 1.12/1.15 range after an upside test was rejected. We turned neutral on EUR/USD. Of late, the dollar outperformed slightly, but we look out whether the EUR/USD decline might slow as technical support is lining up from 1.1309 to 1.1270 area.
The sterling rally/short squeeze continued yesterday as investors believe that the risk for a disorderly no-deal Brexit is declining, even as there is no formal consensus/majority in the UK Parliament yet. At the same time, UK eco data of late remained fairly constructive despite uncertainty on Brexit. The BoE will maintain a very cautious approach but a rate hike later this year might again come on the radar if the Brexit process develops orderly. EUR/GBP dropped to the low 87 area. The 0.8656/21 support is come closer. For now we don’t anticipate a sustained break of that area yet.
EUR/USD: will EMU PMI’s or ECB break the EUR/USD stalemate?
