- Rates: Q1 earnings might play important role in coming weeks
Today’s eco calendar only contains second tier data with EMU production and Michigan consumer confidence. JP Morgan and Wells Fargo kick off Q1 earnings season. Earnings and especially corporate outlooks might play an important role in comings weeks if affected by the global growth slowdown. - Currencies: Euro resilience persists despite solid US eco data
EUR/USD dropped (temporary) off this week’s top levels yesterday as the dollar was supported by higher yields and multi-year low US jobless claims. However, the EUR/USD correction was already reversed in Asia this morning. EUR/USD shorts stay in the defensive. Will EUR/USD clear the 1.13 mark today?
The Sunrise Headlines
- US equity markets were close to unchanged yesterday with technology shares underperforming (Nasdaq -0.21%). Asian equities are trading mixed this morning with Chinese indices underperforming ahead of trade data.
- France will oppose the opening of trade negotiations between the EU and US. The Elysee said that the continuous threats of new tariffs and the decision to quit the Paris climate accord are not a good basis to start trade talks.
- Herman Cain, US President Trump’s nomination for a seat on the Fed board, is facing growing opposition. As 4 out of 53 Republican senators publicly said not to back Cain, he would fall short of the 51 votes needed for confirmation.
- The Reserve Bank of Australia warned for a “sharper downturn” in the global economy in its semi-annual assessment. It also sees property prices fall further in Sydney as risks to Australian households have risen.
- The IMF said that new banking rules, emerged since the financial crisis, are keeping banks safer but that the implications for market liquidity are worrying. Recent abrupt gyrations in financial markets could be the “tip of the iceberg”.
- Eurogroup chief Centeno expects a rebound in the EMU economy in the second half of 2019, dependent on progress around Brexit and trade. He said that fundamentals remain strong and that the economic slowdown is still temporary.
- Today’s US eco calendar only contains April University of Michigan consumer confidence. The EMU prints (final) industrial production figures for February. JPMorgan Chase and Wells Fargo kick off the new earnings season
Currencies: Euro Resilience Persists Despite Solid US Eco Data
Euro shows remarkable resilience
EUR/USD initially held near 1.1285 yesterday despite soft comments of ECB’s Draghi on Wednesday. There were no important EMU data. The US-German interest rate differential rewidened slightly in favour of the US currency. US jobless claims printed at a multi decade low and supported the intraday USD momentum. EUR/USD drifted off recent top (closed 1.1253). USD/JPY also rebounded (close at 111.66).
Overnight, Asian equities show no clear trend with China again underperforming. EUR/USD and EUR/JPY jumped higher. We didn’t see specific news to explain the euro uptick. The move is said to be due to strong euro demand at the Tokyo fixing. EUR/USD is again trading in the 1.1290 area. USD/JPY gained a few tricks (111.75 area). Commodity related currencies like the Aussie dollar, the kiwi dollar and the Canadian dollar lost momentum yesterday as the oil rally ran into resistance. In its financial stability rapport, the RBA warns on additional risk to Australian households from elevated house prices. There was little negative impact on the Aussie dollar (AUD/USD 0.7135 area). Today, the EMU February production is expected to decline 0.5% M/M. The figure is outdated, but euro bulls might look for signs of bottoming after recent soft patch of the European economy. In the US, U. of Michigan consumer confidence is expected little changed after last month’s rebound. First Q1 earnings from major US banks will set the tone for (US) equity trading. Earlier this week, the euro was remarkably resilient despite a soft ECB. Yesterday, EUR/USD declined (temporarily) due to overall USD strength. The jury is still out, but the overnight price action suggests that euro shorts remain in the defensive. At same time, the Fed’s wait-and-see bias doesn’t help the dollar. Last week, EUR/USD came close to the 1.1177/87 support, but a break didn’t occur. For that to happen, big negative EMU news or surprisingly strong US data are needed. Recent evidence doesn’t support this scenario. We keep the view that a sustained EUR/USD break lower isn’t evident. In case of a break above 1.13, next high-profile EUR/USD resistance comes in at 1.1448.
EUR/GBP held a sideways consolidation pattern in the lower part of the 0.86 big figure. Markets are awaiting the next steps in the Brexit saga as the UK secured a delay on Brexit. Overnight, EUR/USD gains also spilled over into the EUR/GBP cross rate. There are no important UK eco data today. With the UK heading for a new period of domestic political uncertainty, we see no reason to turn more positive on sterling. We assume the EUR/GBP 0.85 support area to be solid.
EUR/USD holding in the high 1.12 area despite strong US data
