- Rates: Upward risk EMU core CPI; will markets notice?
Risk sentiment gradually started improving during US trading hours with world leaders trying to take the sting out of the US-Iran conflict. Attention turns to eco data today, with EMU (core) CPI possibly printing the highest reading since 2015. The US-non manufacturing ISM is forecast to show a wide divergence with the dreadful manufacturing gauge printed last week. - Currencies: EUR/USD rebounding near 1.12
The US-Iran conflict continued to dominate market headlines yesterday but the overall level of risk aversion eased gradually. The dollar returned part of last week’s (modest) gain. EUR/USD retested the 1.12 area. US and EMU eco data might be EUR/USD supportive today. 1.1239/1.1250 is next important resistance for the EUR/USD cross rate
The Sunrise Headlines
- Wall Street gradually recovered from a red opening and gained eventually up to 0.56% (Nasdaq). Asian stock markets continue the risk rebound with Japan (+1.6%) outperforming, boosted by a weaker yen.
- Oil prices slipped this morning while gold stabilises after a recent surge on US/Iran tensions. While the White House has sent additional forces to the Gulf area, investors do not assume an imminent full-blown war.
- With Iran pulling back from the nuclear deal that limits nuclear enrichment by the country, the UN could reimpose international sanctions on Tehran, EU diplomats said, adding that everything will be done to save the 2015 agreement.
- Chancellor of the Exchequer Javid will outline the UK budget on March 11 in which he promises to deliver on pledges made by PM Johnson during the election campaign such as increased investment spending.
- Former national security advisor Bolton said he’s willing to testify in the impeachment trial if subpoenaed by the Senate. His change of stance comes after increased pressure from the House Democrats to allow key witnesses.
- Ireland braces for elections this year in which parties feel pressured to promise more public spending to support housing and healthcare as corporate tax receipts have surged but are unlikely to last, according to the finance minister.
- Today’s economic calendar contains US trade balance data and the December non-manufacturing ISM. Inflation figures (December) are due in the EMU. The US taps the bond market
Currencies: EUR/USD Rebounding Near 1.12
EUR/USD rebounds close to 1.12 barrier
USD gains on the Middle East tensions were modest on Friday and yesterday. On the euro side of the story, a classical risk-off correction triggered a simultaneous decline of USD/JPY, EUR/JPY and EUR/USD. However, the damage for the single currency could have been (much) bigger. A verbal escalation in the US-Iran conflict during the weekend didn’t cause any further EUR/USD losses. On the contrary, headline risk eased and a better than expected EMU services PMI helped EUR/USD return to the 1.12 area. (close at 1.1197). USD/JPY also rebounded as equites found their composure. The pair closed at 108.37.
This morning, Asian equities join yesterday’s WS rebound. Most Asian currencies (except the yen) are rebounding. The yuan hit the strongest level since early August (USD/CNY 6.9525 area). The Aussie dollar stays under pressure as markets ponder the chances for further rate cuts (AUD/USD 0.6915 area). USD/JPY is only gaining a few ticks despite the risk-on (108.40 area). EUR/USD hovers close to but slightly below 1.12.
Today, the EMU December CPI and the US non-manufacturing ISM are worth looking at. EMU headline CPI is expected at 1.30%, but national data suggest an upward ‘surprise’. For the US non-manufacturing ISM, a rise from 53.9 to 54.5 is expected. A positive surprise probably won’t be easy (cf manufacturing ISM). So, in theory the data could be EUR/USD supportive. Developments in the Iran-US conflict are a wildcard. Even so, we still see signs of underlying USD softness. Yesterday, EUR/USD rebounded further off the 1.1125 support. EUR/JPY also easily stayed above key support levels. So, the gradual EUR/USD uptrend from end last year remains intact. A break a above 1.1239/50 would further improve the MT technical picture. The USD/JPY pattern remains unconvincing and also suggests underlying USD softness.
Sterling rebounded yesterday. The UK currency profited from the easing of the global uncertainty in the wake of the Iran-UK conflict. The UK services PMI also printed better than expected and supported the return to sterling. EUR/GBP closed the day at 0.8502 (from 0.8533). There are no eco data in the UK today. The UK parliament will return and debate the Brexit bill, but we don’t expect any high-profile news. The post-election correction of sterling apparently has run its course. We expect more technical trading around current levels in EUR/GBP. Investors might look for guidance from the BoE (no rate cut for now?).
EUR/USD rebounds as Middle East tensions move gradually to the background. 1.1239/50 next resistance
