Rates: Focus on Fed meeting
Markets might be paralyzed ahead of Wednesday’s FOMC verdict. A dovish outcome is expected which should keep US yields under modest downward pressure. The US 10-yr yield lost 2.61% intermediate support. The Belgian debt agency holds its first regular bond auction of the year following two successful syndications.
Currencies: Dollar trading with a soft bias going into Wednesday’s Fed decision
This morning’s price action suggests a continuation of last week’s trends. Declining yields and a soft dollar support a positive risk-on bid on global markets. EUR/USD is trending further off the 1.12 range bottom. Sterling shifted to a wait-and-see modus as a next set of key Brexit event risks are lining up.
The Sunrise Headlines
- US stocks finished a strong week in green last Friday, registering gains ranging from 0.50% (S&P) to 0.76% (Nasdaq). Asian equities start this week on positive footing with China outperforming (+1.75%).
- Rating agency S&P has raised Portugal’s rating from BBB- to BBB with a stable outlook, citing the country’s steady economic growth and primary budget surpluses that keep the debt to GDP ratio “on a firm downward path”.
- Saudi Energy Minister Al-Falih said OPEC(+)’s job in restoring the oil market is “nowhere near complete” as the risk of oversupply in the short term is still present. Oil production curbs are to remain in place at least until May/June.
- Theresa May will meet with Tory rebels and the Northern Irish DUP. May seeks support for her beleaguered brexitdeal which she is to put for another (third) vote, possibly tomorrow, but only if there’s a decent chance to get approved.
- Slovakia’s first round of the presidential elections has resulted in a resounding victory for liberal lawyer Zuzana Caputova (40.6%). She is to face Smer-backed Sefcovic, who came in second (18.7%) in the next round in 2 weeks.
- The ECB is deeply concerned about the EU asserting power over clearing houses supervision, saying it strips them from powers to safeguard the houses’ functioning which has a direct impact on bank’s lending capacity..
- Today’s economic calendar is little inspiring. The US publishes NAHB’s housing market confidence. Belgium taps the bond market. Given the scant data we expect investors to focus on Wednesday’s Fed meeting
Currencies: Dollar Trading With A Soft Bias Going Into Wednesday’s Fed Decision
USD caution prevails as market await Fed decision
The EUR/USD quite easily retained most of its weekly gain on Friday. Initially, the EUR/USD rebound took a breather even as sentiment on risk remained positive. US data were mixed. The Empire manufacturing survey and production data disappointed. Michigan consumer confidence was solid. Still US yields tested/drifted below technical support levels and the dollar turned back south. EUR/USD again tested last week’s peak levels in the 1.1340+ area (close at 1.1326). USD/JPY struggled not to fall below the 111.50 area (close at 111.48). This morning, Asian equities are taking a positive start to the week, with China outperforming. We didn’t see any specific reason. Japanese exports (and imports) disappointed in February but didn’t affect regional sentiment in a profound way. Expectations for a soft Fed (reducing its projected rate hikes on Wednesday) supports global risk taking. USD/JPY is little changed in the 111.55 area. EUR/USD is gaining a few ticks and is again changing hands the 1.1335 area. The global risk-on context and an improving sentiment on China also propelled the Aussie dollar this morning. AUD/USD regained the 0.71 handle. The EMU eco calendar is thin today. In the US, the NAHB housing index is interesting, but is no high profile market mover. It rebounded since the December dip, but the picture is still a bit fragile. A further loss of momentum might be seen as reinforcing the case for the Fed to keep a wait-and-see approach. There are few important data in EMU or the US before the Fed decision. German ZEW confidence is the exception to the rule. Brexit remains a source of global/euro uncertainty.
Last week, EUR/USD traders soon forgot the soft message from the ECB March meeting. EUR/USD profited from an improving risk sentiment. The risk-on and the EUR/USD rebound was at least partially supported by expectations on a soft Fed at this week’s meeting. This morning’s price action only confirms investors USD/caution ahead of Wednesdays Fed meeting. The technical picture for EUR/USD become more stable The 1.12 range bottom survived. Any further sustained rebound needs better EMU data. As long as the EMU eco picture remains foggy, more EUR/USD consolidation might be in the cards (1.12/1.14 area).
On Friday, sterling entered calmer waters as a series of key votes were out of the way. Still, sterling remained will bid given the high degree of uncertainty that still persists on the next steps in the brexit process. This week, UK PM May might still try to get her deal approved. Later she will probably ask for a brexit delay at the EU summit. We don’t expect the brexit process to be clarified anytime soon and stay cautious on sterling. The 0.8490/0.85 area might become a ST floor for EUR/GBP.
EUR/USD: Dollar softness prevails ahead of Wednesday’s Fed decision
