- Rates: More clarity in FOMC Minutes?
Investors will be looking for more clues about future Fed policy in Minutes of the January meeting. Consensus is building that the Fed will adjust the balance sheet run-off process in March or June. We hold a cautious positive intraday bias for core bonds. - Currencies: Sterling rallies ahead of key meeting between EU’s Juncker an UK PM May
Yesterday, EUR/USD rebounded further even as the news flow on Europe remained soft. The dollar showed tentative signs of weakness, too. Today, EC consumer confidence, the Minutes of the January Fed meeting and headlines on trade and Brexit will dominate FX trading. The EUR/GBP 0.8620 support is coming on the radar as Brexit talks enter key phase.
The Sunrise Headlines
- US equity markets re-opened yesterday after a long weekend with modest gains (0.15%). Asian equity markets are trading in green this morning with China and Australia marginally underperforming.
- The US pushes China to keep the yuan stable in an attempt to neutralize efforts from China to devalue its currency to counter US tariffs. US President Trump repeated an extension of the March 1 deadline is possible. The yuan gains.
- NY Fed’s Williams doesn’t see the need to raise interest rates any further, unless growth or inflation shifts unexpectedly higher. He also estimated that the Fed would continue the balance sheet run-off well into next year.
- UK PM May will meet with EU Commission president Juncker today. May will try to save her Brexit deal by searching for legally binding changes to the Irish backstop. Juncker already played down prospects of any breakthroughs.
- Japanese exports fell 8.4% (Y/Y) in January for a second straight month and well below expectations (-5.7%). A large decline in shipments to China (-17%) is the main driver. Imports declined -0.6% (Y/Y), beating expectations(-3.5%).
- German Chancellor Merkel and French President Macron are intensifying their campaign to review EU antitrust rules. They want EU companies to be able to compete on a global level, which is currently blocked by tough EU merger rules.
- Today’s eco calendar contains the Minutes of the January Fed meeting and February EMU Consumer Confidence. ECB chief economist Praet speaks in Frankfurt. Germany taps the market.
Currencies: Sterling Rallies Ahead Of Key Meeting Between EU’s Juncker An UK PM May
Sterling rallies ahead of key May-Juncker meeting
Yesterday, EUR/USD rebounded further. If anything, headlines were euro negative rather than positive. Italian production and order data were again weak. ZEW German confidence was mixed and ECB members did speak soft. EUR/USD fell briefly below 1.13, but rebounded later. A better risk sentiment dented appetite for the dollar. A rebound of cable maybe also supported EUR/USD. The US NABH housing index rose more than expected but failed to inspire USD bulls. EUR/USD closed at 1.1341 (from 1.1311). Soft BOJ comments initially weighed on the yen, but USD softness finally caused USD/JPY to close little changed at 110.63.
Most Asian equity indices are trading in positive territory with China underperforming. The yuan rallied (USD/CNY 6.7250) on headlines that the US asked China to keep its currency stable as part of the trade talks. The yen (USD/JPY 110.85 area) weakened further on poor Japan foreign trade data. BOJKuroda again suggested that BOJ policy isn’t weakening the yen. Still, recent BOJ-talk on the currency is striking. AUD/USD stabilizes in the upper half of the 0.71 big figure despite (slightly) softer than expected Q4 wage data. Today, the EC consumer confidence is expected to ease further to -7.7 from -7.9. In the US, markets will look out for the minutes of the Jan 30 Fed meeting. The turn in the Fed’s bias is already well documented. Still, the (FX) market might be slightly more sensitive to dovish accents rather than ‘hawkish’ ones. Headlines on trade and on Brexit remain wildcards.
Last week, disappointing US data capped the USD rebound. EUR/USD rebounded off recent lows, but the picture remains fragile. Progress on global trade issues and better EMU data are needed for a more protracted EUR/USD comeback. 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.
Yesterday, sterling showed remarkable strength. EUR/GBP drifted lower throughout the day and close below 0.87. Solid UK labour data helped sterling. At the same time, markets apparently hope that upcoming EU-UK talks might at least avoid a chaotic no-deal Brexit. Today, CBI order data are interesting but probably of second tier significance for GBP-trading. The focus will be on a new ‘crucial’ meeting between EU’s Juncker and UK PM May. It is unsure whether any real progress will be made. At least for now, sterling trading are inclined to see the glass half full rather than half empty. EUR/GBP 0.8621/17 is key MT support.
EUR/USD rebounds off recent lows, but picture remains fragile.
