- Rates: US 10-yr yield intensively testing 1.94% resistance
US bond markets were closed for Veteran’s Day yesterday. The sell-off in Japanese bonds continues this morning. The Japanese 10-yr yield approaches 0% for the first time since March. All eyes are on Trump’s trade speech today. We expect it to keep risk sentiment constructive and core bond yields positively oriented. The US 10-yr yield is at risk of piercing 1.94%. - Currencies: Dollar retains benefit of the doubt
The dollar easily retains most of recent gains. Hopes for a trade truce gave the US currency additional interest rate support. At the same time EMU eco data failed to convince FX traders. Today, the ZEW German economic confidence and Trump’s trade strategy might guide euro and USD trading. Sterling profits from rising chances on Conservative election victory
The Sunrise Headlines
- WS edged slightly lower (up to -0.2%) in subdued trading as uncertainty over Sino-US trade talks and the political strife in Hong Kong dogged sentiment. Asian markets are trading positive, with South Korea outperforming (0.7%).
- US president Trump said this weekend that there had been incorrect reporting about US willingness to lift tariffs on China. The US President will discuss the country’s trade policy at the Economic Club of NY later today.
- Violence broke out across Hong Kong following the shooting by police of a demonstrator, in an escalation of protests that have gripped the city for the past 5 months. Yet, chief Lam hopes for Hong Kong district elections to go ahead.
- US president Donald Trump is expected to announce this week that he is delaying a decision on whether to slap tariffs on cars and auto parts imported from the EU, likely for another six months, EU officials said.
- The risk of a hung parliament in UK elections eased as Farage gave Johnson a boost by announcing his Brexit party will not fight to oust Conservative seats during next month’s UK general election, hoping to end the Brexit impasse.
- Spanish acting prime minister Pedro Sanchez’s election gamble to bolster his chances of forming a stable government backfired as the PM saw his Socialist party lose further ground, leaving Sanchez with few coalition options.
- In today’s economic calendar investors will keep an eye on US small business optimism and UK labour market data, the bastion of resilience since the Brexit referendum. Germany’s ZEW survey will shed a light on investor sentiment.
Currencies: Dollar Retains Benefit Of The Doubt
Dollar retains benefit of the doubt
Trading in the major FX cross rates took a slow start for the new week yesterday. There were few eco data and US bond markets were closed for Veterans Day. In technical trading, EUR/USD held with reach of recent correction low after last week’s break of the 1.1073/65 support. The pair closed the day marginally stronger at 1.1033. USD/JPY hovered around the 109 pivot, the finish the day at 109.05.
This morning, Asian equities show a mixed picture. Most indices regain some momentum after a soft start. Investors still await more concrete news on a US China first phase trade deal. The ongoing violence in Hong Kong remains a source of regional caution. At the same time, a further rise in Japanese yields still doesn’t help the yen. USD/JPY (109.20 area) even gains a few ticks. EUR/USD stabilizes in the 1.1035 area. The kiwi dollar (AUD/NZD 0.6335 area) declines as soft inflation expectations support the case for further RBNZ easing.
Today, German ZEW investor confidence is expected to bottom/slightly rebound from low levels. Question is whether this will be enough to kickstart a euro rebound. In the US, the focus remains on the trade negotiations as president Trump might bring some concrete news on his trade strategy in a speech. Comments were a bit mixed of late, but we still expected the US president to keep the door open for a trade truce in the near future. Positive trade headlines often triggered a further rise in core/US yiels recently and were more supportive for the dollar than for the euro. So, a euro rebound probably also needs better data/ headlines on the EMU economy. From a technical point of view, the October EUR/USD rebound ran into resistance. The pair even dropped below the 1.1073 neckline, calling off the upside momentum. The 1.10 area marks the next ST support. We look for signs of ST bottoming out, but for now the dollar remains the benefit of the doubt.
Eco headlines were GBP negative yesterday. Moody’s cut the outlook on the UK Aa2 credit rating to negative and UK Q3 growth printed soft at 0.3% Q/Q. However, political headlines propelled sterling as Nigel Farage announced his party will not contest seats of the conservative party, raising the chances for a conservative party election win. EUR/GBP set a minor correction low and closed at 0.8584. We don’t expect big sterling move as the election campaign continues, but short-term sentiment on the UK currency is constructive
EUR/USD: USD remains well bid. Euro needs better EMU news
