- Rates: Fed Brainard proposes yield curve caps when rates hit ELB
Washington Fed-based governor Brainard suggested a strategic overhaul, introducing yield curve control if policy rates hit the effective lower bound in future downturns. Her comments obviously didn’t alter intraday trading dynamics, but should be kept in mind. Ahead of the long weekend in the US, we expect core bonds to maintain their modest upward bias. - Currencies: EUR/USD struggles not to fall below
Yesterday, US data were mixed to slightly softer, but hardly affected USD trading. EUR/USD is holding a tight range slightly above 1.10. Today’s US data won’t change the broader picture, but a positive surprise might push EUR/USD for a test of the 1.0989 support. Sterling lost a few ticks as polls suggest the Conservative lead for the Dec 12 elections might narrow.
The Sunrise Headlines
- US equities rose to fresh all-time highs amid for a second consecutive day amid upbeat news on the trade front. The S&P 500 (+0.22%) outperformed. Asian markets are trading mixed. Australia outperforms (+0.93%).
- US president Trump signaled progress on the US-China trade front yesterday. He declared the countries “are in the final throes of a very important deal and things are going very well” after negotiators from both sides talked by phone.
- US consumer confidence unexpectedly slowed in November to 125.5 from 125.9 in October (consensus at 127). Worries about current business conditions and cooling labour conditions pushed the indicator lower.
- Fed governor Lael Brainard backed the solid US economy but pledged that the Fed should evolve towards a flexible average inflation target. This would boost the Fed’s credibility and give it more leeway in steering its interest rates.
- Brazil’s currency slumped to an all-time low of USD/BRL 4.2330 yesterday after the economy minister commented that a weak currency should not be a concern. The central bank intervened twice in the FX market to prop up the real.
- Canadian National Railway struck a tentative agreement with the union, bringing an end to a weeklong strike that brought shipments of oil, grains and potash across Canada to a standstill and threatened to upend the economy.
- In today’s economic calendar the US economy takes driver’s seat. Durable goods orders, price and GDP data are due. The Fed also releases its Beige Book. In Europe, ECB’s Lane is scheduled to speak. Germany and the US issue bonds
Currencies: EUR/USD Struggles Not To Fall Below
EUR/USD struggles not to fall below 1.10
Yesterday was an uneventful session for USD trading. Persistent headlines on constructive US-China trade talks understandably failed to inspire trading. Investors first want concrete results/details. In the afternoon there were quite some US eco data. The Richmond manufacturing index and the consumer confidence (Conference Board) printed slightly softer than expected. The impact on the dollar was very limited. EUR/USD gained a few ticks and closed at 1.1021. USD/JPY soon resumed its gradual intraday uptrend to close the session at 109.05.
Asian equites mostly show modest gains this morning. President Trump repeated that negotiations were ‘in the final throes of a very important deal’. However, the market reaction remains limited. The dollar even slightly outperforms. EUR/USD is drifting back south in the 1.10 big figure (1.1010 area). USD/JPY is changing hands north of 109 (109.15). The yuan gains marginally (USD/CNY 7.03).
Today, headlines on trade talks remain a wild card for trading. In the US there is again quite a long series of data ahead of the Thanksgiving holiday. The data include the second reading of the US Q3 GDP, the durable goods orders, jobless claims, Chicago PMI, spending and income data and the price deflators. We don’t expect the data to change to broader picture on the US economy. Still, we see a decent outcome for the durable orders and for the spending/income series. If anything, the data might be a tentative USD supportive. Even so, investors will stay cautious to place big directional bets ahead of the Thanksgiving/Back Friday weekend.
Last week, a minor EUR/USD rebound was blocked near 1.11, leaving the pair in a neutral, slightly unconvincing trading pattern. The price action this week, suggests underlying euro softness, rather than USD strength. A return below 1.0989 would deteriorate the ST picture. A rebound above 1.11 would be constructive in a ST perspective.
Sterling ceded ground yesterday. Polls still see the Conservative party in the lead, but the gap is slightly narrowing. If so, it raises the risk of none of the major parties reaching an outright majority. This could lead to a new stalemate in the Brexit process. EUR/GBP rebounded to the 0.8575 area. There are no important eco data today. Monitoring the polls remains the name of the game for sterling trading. For now, we still don’t expect a big repositioning going into the December 12 election.
EUR/USD: euro struggles not to fall below intermediate support
