Rates: Hints of tiering in ECB Minutes?
A disappointing US non-manufacturing ISM failed to lift US Treasuries. Today’s eco calendar only contains second tier eco data. Minutes of the March ECB meeting could be interesting. Talk about tiering up the deposit rate intensified since that meeting. The ECB might elaborate on this issue in June or September.
Currencies: EUR/USD drifting higher off 1.1187/77 support
The dollar rally met resistance yesterday. At the same time the euro enjoyed some positive news. EUR/USD gradually rebounded off recent lows. Today, the eco calendar is thin. USD traders are looking forward to tomorrow’s payrolls. The dollar probably needs exceptionally strong US data to extend recent rally
The Sunrise Headlines
- US equity markets edged higher yesterday with technology shares outperforming (Nasdaq +0.6%). Asian equities are trading mixed with Chinese indices outperforming.
- The UK parliament narrowly passed an emergency bill to avert a no-deal Brexit by forcing PM May to seek a new extension to the current deadline of April 12. Meanwhile, PM May continues talks with Labour leader Corbyn.
- Bank of England governor Carney said the UK is better prepared for a no-deal Brexit than it was six months ago. A no-deal scenario is still possible, despite the new UK bill, in case the UK and the EU cannot agree on a new extension.
- The US sets a 2025 target for China to meet its commitments on commodity purchases and to provide full market access for US companies. US President Trump will meet Chinese Vice Premier Liu He later today.
- National Bank of Poland governor Glapinski reiterated that the current low policy rate may stay unchanged until 2022, after the NBP kept its policy rate unchanged at 1.5%.
- US crude oil inventories rose by 7.3 million barrels last week, the most since January. The news put a pause to the biggest quarterly advance(+33%) for oil prices since 2009. The price for a barrel of crude Brent oil declined to $69,3.
- Today’s eco calendar contains this week’s jobless claims in the US and factory orders (February) in Germany. The ECB publishes the meeting minutes of the March meeting, while Fed’s Mester and Harker speak
Currencies: EUR/USD Drifting Higher Off 1.1187/77 Support
EUR/USD driting higher off 1.1187/77 support
The recent USD up-leg ran into resistance yesterday and fortunes changed in favour of the euro. On Tuesday, the dollar came close to important technical resistance (DXY 97.50/75 area). EUR/USD had dropped to close to the 1.1177/87 support. At least yesterday, there was no trigger for the USD to break beyond these levels. At the same time, the euro was supported by a positive risk sentiment. EMU services PMI’s also printed stronger than expected. Especially positive surprises from Italy and Spain provided some comfort. US data (ADP/non-manuf. ISM) were softer than expected, but had limited impact. EUR/USD rebounded off the 1.12 area to close at 1.1233. USD/JPY gains (close at 111.49) were modest given the rise in core yields and a positive risk sentiment.
Overnight, the risk rally is taking a breather. Investors await concrete progress in the US China trade talks. Asian equities show limited losses with China outperforming. Core yields show no clear trend after recent rise. The TW USD (DXY) is losing a few ticks (low 97 area). EUR/USD trades near 1.1245. Today, markets will be keen to see whether German February orders finally shows some signs of bottoming. If so, it might be a slightly euro supportive. The US calendar only contains the challenger job cuts and the jobless claims. So, USD trading might be order driven and technical in nature ahead of tomorrow’s US payrolls. Headlines on the trade talks remain a wildcard.
Early this week, EUR/USD came close to the 1.1177/87 support, but a real test/break didn’t occur. The jury is still out, but this week’s price action suggests this support won’t give away that easily. For that to happen, unexpected additional negative EMU news or surprisingly strong US data are probably needed. Recent data evidence doesn’t support this scenario. A constructive risk sentiment/positive headlines on trade might be a euro supportive too. We keep the view that a sustained EUR/USD decline will not be that evident as we don’t expect the Fed to leave its wait-and-see bias anytime soon.
EUR/GBP showed no clear trend yesterday. The pair mostly hovered in the lower half of the 0.85 big figure. Later yesterday, the House of commons approved a bill make a no-deal Brexit legally impossible. From here, markets will watch the talks between UK PM May and labour leader Corbyn. They might lead to a soft Brexit, but it is still highly uncertain how PM May will handle opposition in her own Party. We don’t preposition for further sustained sterling gains at this stage.
EUR/USD: tentative signs of bottoming?
