- Rates: Summer’s here
Core bonds oscillated near Friday’s post-payrolls low in this week’s uneventful opening session. The consolidation process is set to continue today in similar low volume conditions. Fed and ECB speakers are wildcards, but most of them recently ruffled their dovish feathers. - Currencies: USD preserves recent gains as investors await guidance from Powell
The dollar maintained its post-payrolls gains yesterday as markets pondered how much room there is for Fed easing in the near future. ECB governors keeping the door open for further easing also capped the topside in EUR/USD. Trading in the major cross rates might be quite similar to yesterday
The Sunrise Headlines
- Wall Street ended lower on Monday as little inspired investors awaited Fed’s Powell testimony later this week. The Nasdaq (-0.78%) underperformed. Asian markets follow suit with India (-0.8%) underperforming.
- Hong Kong’s leader Lam said that the extradition bill was ‘dead’ and that there’s no plan to restart the legislative process. The bill that would allowed HK to extradite people to China sparked the city’s biggest political crisis in decades.
- The US government said that its producers were harmed by subsidized steel imports from China and Mexico. In a response, Mexico said the US antidumping probe was not related to president Trump’s earlier tariff threats.
- While talks are scheduled for this week, South-Korea said it could not exclude countermeasures to Japan’s high-tech export restrictions if it did not withdraw them soon. It also plans to involve the WTO as the diplomatic row escalates.
- After easing mortgage lending rules last week, the Australian regulator also decided to increase the bank capital buffer by less than originally proposed. Banks would now have to raise A$50 bn in the coming years vs. A$75 bn initially.
- Tory rebel Grieve tabled an amendment that forces the next PM to update Parliament every two weeks starting from October until December, effectively preventing any PM to set aside Parliament to pursue a no-deal Brexit on Oct 31.
- Today’s event calendar eyes rather empty again. US NFIB small business optimism (June) is due. Several ECB and Fed governors are scheduled to speak. The US mid-month refinancing operation kicks off
Currencies: USD Preserves Recent Gains As Investors Await Guidance From Powell
Dollar preserves recent gains.
The dollar maintained its post-payrolls gains yesterday in a session devoid of important data. On the euro side of the story, German May production printed again poor. Later ECB’s Coeuré indicated the ECB is ready to cut rates or restart QE if necessary. Both factors also capped any intraday up-ticks of EUR/USD. At the same time, the dollar retained the benefit of the doubt as investors pondered the pace of potential Fed easing, looking forward to Fed Powell’s’ hearing before Congress. EUR/USD closed at 1.1214 (from 1.1225). USD/JPY was also well bid even as risk sentiment dwindled to close at 108.72 (from 108.47). This morning, Asian equity indices show modest losses, in line with WS yesterday. The recent rebound in US yields and a strong dollar are denting sentiment in the region. Some regional geopolitical issues are a source of investor caution, too. EUR/USD is trading little changed in the 1.1215 area. USD/JPY is holding in the 108.70/75 area.
Today, the calendar in Europe contains again only second tier data, but several ECB members will speak, probably keeping the door open for further ECB stimulus. In the US, the NFIB small business confidence is expected to ease from 105 to 103.1. The release is interesting, but seldom a market mover. So, markets, might stay in some kind fo wait-and-see pattern ahead of tomorrow’s appearance for Fed’s Powel before Congress. Over the previous days, markets turning a bit more cautious on Fed rate cut expectations combined with a less buoyant risk sentiment favoured the dollar. We don’t see a case for big USD swings today, but by-default USD strength might persist.
Last week, EUR/USD drifted lower in the 1.11/1.14 range. First key support comes in at the 1.1181 (correction low). A break would open the way for a return to the year lows (1.1100/10 area). A rebound to the 1.13 would indicate an easing of the downside momentum.
In the UK, the focus in the Brexit debate is shifting from the race for the leadership of the Conservative party to attempts from Tory MP’s to prevent the next PM (B. Johnson) from suspending Parliament as it tries to block a no-deal Brexit. For now, it hardly changed the sterling trading dynamics. EUR/GBP hovers in the upper half of 0.89. Eco data and surveys also suggest little or no UK growth in Q2. We expect more erratic trading of sterling near recent lows vs. the euro and the dollar.
EUR/USD: drifting lower in the 1.14/1.11 trading range as markets scale back Fed rate cut speculation post payrolls
