Rates: US 10-yr yield retests lost support
US payrolls are expected to rebound following a dismal February figure. This week’s US eco data managed to ease global growth worries somewhat with the US 10-yr yield retesting previously lost support in the 2.5%-2.55% area. The German 10-yr yield returned into positive territory.
Currencies: Will payrolls give a clear enough signal for a directional USDD move?
EUR/USD reversed most of Wednesday’s rebound, but the 1.12 support still survived. EUR/USD and USD/JPY profit slightly from positive headlines on the China-US trade talks this morning. The focus for USD trading will be on the US payrolls. However, a big surprise is probably needed to pushed the dollar (EUR/USD) out of recent ranges
The Sunrise Headlines
- US equity markets gained mostly ground yesterday with technology shares underperforming (Nasdaq -0.05%). Asian equities are trading largely in green with modest gains. Bourses in China and Hong Kong are closed.
- The US and China reached consensus on the text of a trade deal, Chinese VP Liu He said. Chinese president Xi Jinping cited substantial progress, while US president Trump said a deal could be concluded within four weeks.
- UK PM May will continue negotiations with Labour’s Corbyn today after no agreement was found yesterday. They are facing growing opposition to the cross-party initiative, with a public vote on a deal as one of the talking points.
- US President Trump is to nominate Herman Cain for a position on the FED’s board of governors. Cain, a former contender for the Republican presidential nomination and ex-CEO of Godfather’s Pizza, is a friend of the president.
- US President Trump backs away from threats to immediately close the US border with Mexico to stop immigrant crossing, but instead raised the possibility to impose new tariffs on Mexican car import.
- Japanese real wages fell 1.1% in Feb. (Y/Y) with a downward revision of January to -0.7% (Y/Y), driven by lower bonuses. The result is a bit surprising giving the historic low unemployment rate and severe labour shortages.
- Today’s eco calendar contains US payrolls and earnings data for March. Canada prints labour data, while Germany prints the Industrial production for February. Fed’s Bostic speaks and EU finance ministers meet
Currencies: Will Payrolls Give A Clear Enough Signal For A Directional USDD Move?
Will payrolls give directional guidance for USD?
EUR/USD reversed most of Wednesday’s gain yesterday. The risk rally took a breather. German factory orders again declined sharply. EUR/USD started a gradual intraday slide. Later, jobless claims printed strong/low (202K), confirming a healthy labour market. US yields reversed an earlier dip. The combination of euro softness and a USD bid pushed EUR/USD to the low 1.12 area. The pair closed at 1.1221. USD/JPY stayed well bid and finished at 111.66. Overnight, Asian equities mostly show modest gains as US and China officials confirmed progress on the trade talks. At least for now there is no euphoria. USD/JPY (111.70 area) profits slightly from the tentative risk-on. At the same time, EUR/USD also gains marginally (1.1225 area). This morning, German production data might guide euro trading at the start of the session. However, the focus for global FX trading will be on the US payrolls. Late last week, markets were dominated by some kind of growth panic. This panic eased this week. In this context, a material deviation from consensus is probably needed for the payrolls to trigger an outspoken USD move. With the USD close to meaningful resistance levels (EUR/USD 1.12 support) , the USD reaction function might be slightly asymmetrical with the dollar a bit more sensitive to a negative surprise than to a positive one. 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 hovered in the 0.85 big figure yesterday as investors await more news from the talks between officals of PM May’s party and the Labour opposition to try to find a way out of the Brexit impasse. This morning, EU’s Tusk was said to offer the UK a 12-month Brexit delay. Sterling is gaining modest ground. A long delay evidently avoids a hard Brexit, but probably won’t solve the political stalemate in the UK. We expect more technical trading in the EUR/GBP 0.85 big figure as the negotiations will most likely continue into the weekend.
EUR/USD: tentative signs of bottoming?
