- Rates: Powell to confirm Fed’s U-turn; confirm end of BS run-off by the end of the year?
Fed Chair Powell testifies before the US Senate banking panel. He is expected to confirm the US central banks’ hasty U-turn made between December and now. He could confirm the Fed’s desire to end the balance sheet run-off by the end of the year while remaining in assessment mode to see where the economy’s going. We hold a tentative positive bias for bonds. - Currencies: EUR/USD holding near 1.1370 resistance. More USD weakness to come?
EUR/USD profited from a mild risk-on due to easing trade tensions yesterday. Today, the focus for USD trading turns to the US with the consumer confidence release and Fed Powell’s testimony before the Senate. Powell confirming a soft approach on the balance sheet roll-off might weigh on the dollar. EUR/GBP is near key support as chances for a Brexit delay are rising
The Sunrise Headlines
- US equity markets posted rather limited gains (up to 0.36% (Nasdaq)) after president Trump delayed the Chinese tariff deadline. Asian equities are losing ground this morning with China reversing earlier gains.
- UK PM May is said to consider a Brexit delay to prevent the UK from leaving the EU without a deal next month. She will hold a Cabinet meeting today and then reveal the conclusions in an announcement to Parliament afterwards.
- US vice-president Mike Pence urged Latin American countries to intensify their efforts to isolate Venezuela’s sitting president Maduro, after a weekend of chaos. He said the US would impose more financial sanctions in the next days.
- The US House votes on a resolution to revoke President Trump’s declaration of national emergency to build the wall on the Mexican border. It will likely pass the Democrat-controlled House and then move to the (Rep.-controlled) Senate.
- World trade rose 3.3% in 2018, down from the 4.7% rise in 2017, according to a Dutch research group. Imports to and exports from China plummeted at the end of the year, a sign that the trade war is cooling global economic growth.
- Iranian Foreign Minister Javad Zarif unexpectedly resigned his post yesterday, as his engagement with the West was failing. Zarif, the architect of the 2015 nuclear deal, was known to favour engagement rather than confrontation.
- Today’s eco calendar contains the Conf. Board Consumer Confidence (Feb) in the US. ECB’s Coeuré and Lane speak today. BOE chief Carney and Fed chief Powell address their governments. Spain offers new 15-yr bonds.
Currencies: EUR/USD Holding Near 1.1370 Resistance. More USD Weakness To Come?
EUR/USD holding near recent correction top
Global markets traded with a risk-on bias testerday, as president Trump delayed the deadline for raising import tariffs on Chinese goods. Optimism in Europe and the US was more modest compared to their Asian/Chinese counterparts. The guarded reaction also prevented EUR/USD to break important technical levels. EUR/USD came within reach of last week’s top in the 1.1370 area, but a real test/break didn’t occur. A modest risk-on, higher US yields and the BOJ keeping the option open for more easing propelled USD/JPY. The pair closed at 111.06. This morning, Asian investors turned more cautious, pondering the consequences from the ‘truce’ in the US-China trade conflict. The Indian rupee declined on regional tensions, but the move was said to be ‘blocked’ by central bank action. USD/JPY reversed most off yesterday’s rally as global optimism is easing and as US yields are declining ahead of Fed Powell testimony before Congress this afternoon. EUR/USD is holding rather strong (1.1360 area.) Today, US housing data are probably of second tier importance for (USD) trading. Consumer confidence (conference board) will get more attention. A rise from 120.2 to 124.9 is expected. Of late, US data turned more mixed. The jury is still out, but the dollar might be (slightly) more sensitive to a downside surprise than to an upward surprise. However, the focus for (USD) trading will be on Fed Powell’s testimony before the Senate. The Fed chairman will probably maintain its wait-and-see approach on interest rates. A ‘soft’ tone on the normalisation of the balance sheet might is in theory USD negative. Last week, EUR/USD rebounded off recent lows euro, but with no strong momentum. An easing of the risk rally might slow the EUR/USD rebound. However, today’s USD specific news (consumer confidence and Powell’s assessment on the Fed balance sheet) might also weigh on the dollar. Any EUR/USD rebound will probably develop a slow pace as long as EMU data remain unconvincing. Still a break beyond 1.1370 might open the way for further gains in the 1.12/1.15 ST consolidation pattern.
There were plenty of rumours yesterday that the UK and the EU might be preparing for a delay of the March 29 Brexit. Sterling stayed well bid. EUR/GBP closed at 0.8672. Overnight a Bloomberg report indicated that UK PM May is considering a Brexit delay if no deal will be reached next month. At the same time, Labour is opening the dollar for a new referendum. Risks for a no deal scenario are apparently declining. This is supporting sterling. However, longerterm it might cement a status of uncertainty. Despite current sterling positive trend, we are cautious to anticipate a sustained break beyond the EUR/GBP 0.8620/00 support.
EUR/USD holding near 1.1370 resistance. More USD weakness to come?
