- Rates: Dovish ECB speak hints at readiness to act
Dovish ECB comments from Coeuré, Villeroy and Rehn hint at ECB action via a fresh round of TLTRO’s or changing the forward guidance on interest rates if the slowdown takes on a permanent character. German Bunds outperform US Treasuries, but strong bourses cap Bund gains. US markets are closed today for Presidents Day, suggesting a slow start. - Currencies: EUR/USD decline to slow
EUR/USD touched a minor correction low on Friday, but sentiment improved later. Poor US data are easing the USD’s recent momentum. A constructive risk sentiment due to hopes on easing trade tensions might be slightly euro supportive. Will this week’s EMU confidence data finally give some comfort, too?
The Sunrise Headlines
- US equities surged to a 10-week high on Friday with all major benchmarks closing in green. The Dow Jones gained 1.74%. Asian equity markets are gaining ground this morning with China outperforming.
- US democrats are preparing legal action against President Trump’s use of his ‘emergency powers’ to fund the border wall, as last week’s approved spending bill does not contain sufficient funds to deliver one of his key promises.
- The UK-Japan trade talks soured after a letter, sent by UK foreign secretary Jeremy Hunt, was badly received by Japanese officials. Japan briefly considered cancelling a round of trade talks this week and is preparing a proper response.
- The ECB could change its interest-rates guidance if the economic slowdown of the EU economy persists, according to ECB governor Villeroy. His remarks are another dovish signal, after governor Coeuré hinted on a new TLTRO on Friday.
- Wilbur Ross, US Commerce Secretary, has submitted his report to president Trump whether imported vehicles pose a national security threat. If so, the US could impose tariffs on car import. Trump has now 90 days to decide.
- Australia’s key political parties have been hacked by a “sophisticated state actor”, said Australian PM Scott Morrison. With key elections lined up in May, the country fears of foreign meddling in the political campaigns.
- Today’s eco calendar is completely empty. The US financial markets are closed for US Presidents day. The UK prints secondary housing data for February.
Currencies: EUR/USD Decline To Slow
EUR/USD decline to slow?
EUR/USD was pushed back and forth by conflicting drivers on Friday. The pair dropped to the 1.1235 area as ECB’s Coeure talked soft on inflation and on ECB policy. At the same time, the Empire manufacturing survey printed strong supporting the dollar. However, fortunes changed again. US January production missed the consensus by a wide margin, creating doubts on US economic strength after very weak retail sales published on Thursday. On the EMU side of the story, European assets (financial equities, peripheral bonds) rebounded as ECB’s Coeure indicated that the bank is discussing new TLTRO’s. Headlines on the US-China trade talks also turned more constructive. EUR/USD closed little changed at 1.1296. Poor US data also prevented USD/JPY to profit from the risk-on (close 110. 47 from 110.48). Sentiment in Asia remains risk-on this morning as both US and China officials signalled progress in the trade talks, which continue this week. Chinese and Japanese equities are taking the lead in the rally with gains between 1.50% and 3.0%+. The (trade-weighted) dollar (96.80 area) is trading off recent peak levels. EUR/USD tries to regain the 1.13 level. USD/JPY hovers in in the mid 110 area. Today, the eco calendar is empty. US markets are closed in observance of Presidents Day and there are no important EMU data. Later this week, the US China trade talks will remain in focus. Markets will also keep a close eye at the next set of EMU confidence indicators (ZEW, PMI’s, Ifo) and the assessment of ECB and Fed policy makers on recent eco developments (including Fed minutes on Wednesday). Last week, the dollar initially maintained the benefit of the doubt, but poor US retail sales and production data also raised doubt on the US economy. We start the week with a cautious/rather balanced EUR/USD bias. We keep the view that improvement in the global trade picture and better EMU data are need to improve sentiment on EUR/USD. There are hopeful signs on trade, but the jury is still out. EUR/USD 1.1216 marks the Nov low. EUR/USD 1.1287 is 61% retracement 2016 low/2018 top). The EUR/USD downside looks a bit more solid versus last week.
A technical rebound of sterling was supported by a solid UK January retail sales release last Friday. EUR/GBP finished the week at 0.8762. This week, UK PM and members of her government will start a new campaign to convince EU leaders to save hear Brexit deal ahead of the February 27 deadline. As we don’t expect a break-through anytime soon, we stay cautious on sterling. More technical trading around current levels might be on the cards.
USD trade-weighted (DXY) dollar ally running into resistance
