- Rates: Cautious bias ahead of Chinese return
Today’s jampacked eco calendar probably won’t provide unison market guidance. French Q4 GDP numbers don’t bode well for the EMU reading. Overall, we hold a cautious/positive bias for core bonds today with Chinese investors to return from a prolonged holiday on Monday. - Currencies: EUR/USD 1.0981/89 support survives, but picture remains fragile
Wednesday’s rather guarded Fed speak slowed the EUR/USD decline. Yesterday’s data were mixed and didn’t help a further sustained EUR/USD rebound. This morning’s poor French Q4 growth print also suggests little support from today’s EMU data. Sterling profits from yesterday’s BoE unchanged decision. EUR/GBP might return to 0.8277 support
The Sunrise Headlines
- US stock markets rebounded in a buy-the-rumour, sell-the-fact reaction after the WHO declared the coronavirus a global emergency while Q4/2019 earnings painted a mixed picture. Asian markets are struggling to regain footing.
- The WHO declared the outbreak of the coronavirus a global emergency, citing the risk that the virus could expand to other countries beyond China with weaker health systems which are ill-prepared to deal with the epidemic.
- Saudi Arabia is pushing to bring forward the scheduled March OPEC+ gathering to February but faces resistance from Russia. Riyadh seeks an emergency meeting amid growing worries that the coronavirus will hit oil demand.
- China’s manufacturing PMI fell to the neutral 50-point mark in January, down from 50.2. The non-manufacturing gauge accelerated to 54.1 from a previous reading of 53.5. The data don’t take the corona-outbreak into account.
- Tokyo’s core inflation gauge eased to 0.7% in January (Y/Y) from 0.8% in December. Industrial production picked up by 1.3% (M/M) in December rebounding at the end of a quarter hit by a sales tax hike and a super typhoon.
- The French economy unexpectedly (consensus: 0.2%) shrank 0.1% (Q/Q) in Q4/2019. The details show a drop in exports (-0.2%) and inventories (-0.2%) while both consumption (0.2%) and business investment (0.3%) growth slowed.
- Today’s economic calendar is quite packed with Q4 GDP and January inflation numbers in Europe and personal income/spending data, Chicago PMI’s and December PCE deflators in the US
Currencies: EUR/USD 1.0981/89 Support Survives, But Picture Remains Fragile
EUR/USD holding above 1.0980 support, but….
Yesterday, EUR/USD meandered through a series of conflicting drivers. The pair held just north of the 1.0981/89 support as communication after Wednesday’s Fed decision convinced markets that the bar for a rate cut was extremely high. Other markets initially fell prey to a flare-up of corona related risk-off, but turned less pessimistic later. USD/JPY tracked the intraday swings risk sentiment (close 108.96). In a mainly technical trade, EUR/USD drifted higher. EC confidence was in theory euro supportive. US Q4 GDP was mixed. The data were no game changer for EUR/USD trading. The pair closed at 1.1032.
Overnight, Asian equities mostly aren’t able to join yesterday’s WS rebound. Japan outperforms. Japanese data were mixed and so were China PMIs (see headlines). USD/JPY is trading a few ticks stronger near the 109 level. The offshore yuan also trades again stronger than USD/CNH 7 (6.9850) as investors look forward to the reopening of mainland China markets. EUR/USD is again losing marginal ground (1.1025 area).
Today, several European countries will release Q4 growth data. France already printed a disappointing 0.1% quarterly contraction, a bad precursor for the EMU preliminary estimate to be released later today (expected at 0.2% Q/Q and 1.1% Y/Y). EMU headline CPI is expected to rise to 1.4% Y/Y, but core is expected to ease from 1.3% to 1.2%. We doubt that the EMU data will be able to kickstart a meaningful EUR/USD rebound. US spending and income data probably are less important after yesterday’s Q4 GDP release.
The EUR/USD trend was clearly south of late, mostly irrespective of the news flow/data. The EUR/USD technical picture deteriorated after its break below 1.1066/40. It paints a H&S pattern with targets near/below 1.09 and interim support at 1.0989/81. This support ‘survived’ post-Fed, but the picture remains fragile. Regaining 1.1120 would be a first sign that downside bias is easing.
Yesterday, the Bank of England left its policy unchanged. As was the case in December, only two members voted for a rate cut, despite recent soft comments from several other governors. A rate cut is still possible if the hoped for rebound in activity doesn’t occur, but for now the BoE will probably stay in wait-and-see modus. Sterling rebounded to the low EUR/GBP 0.84 area. In case of more constructive UK eco data, a return of EUR/GBP to the post-election low (0.8277) might be on the cards.
EUR/USD 1.0989/81 support survives, but picture remains fragile
