- Rates: Looming Powell speech might keep investors sidelined
Asian stock markets and core bond yields pared part of their early losses as sentiment gradually turned slightly more positive this morning. We expect core bonds to show little direction in the run up to key events later this week (Powell’s semi-annual testimony tomorrow). The US administration unveiling its 2021 budget is a tentative negative for UST’s though. - Currencies: EUR/USD stays in the defensive
US payrolls didn’t trigger a big reaction, but were good enough to confirm recent pattern of by-default USD strength. The eco calendar is backloaded this week. The technical picture of EUR/USD deteriorated after last week’s downside break. The 1.0879 2019 low is looming on the horizon.
The Sunrise Headlines
- US stock markets pulled back on Friday with losses up to 0.94% (DJI) as the coronavirus outbreak left sentiment jittery. Asian markets are paring losses (up to -0.70%) as the corona outbreak becomes a less dominant market theme.
- OPEC+ probably won’t hold emergency talks on the impact of the coronavirus, RIA Novosti reported, citing Azerbaijan’s energy minister. Meanwhile, the bloc attends Russia’s response to proposals for further oil cuts.
- The PBOC will grant the first batch of special re-lending funds to businesses for combating the coronavirus today and will also offer the facility weekly to banks later this month as the epidemic casts a shadow over the Chinese economy.
- Chinese CPI (5.4% Y/Y) and PPI (0.1% Y/Y) snapped prior declines in January. The rise in CPI was mainly due to the Lunar NY and a jump in food prices while the PPI spurt was buoyed by a trade truce with the US and government stimulus.
- Sinn Féin won 24.1% of first-preference votes in Saturday’s Irish polls. The revolutionary surge in the party’s support upends the nation’s traditional two-party power structure, leaving the government hanging in the balance.
- US president Trump will unveil $4.8 trillion budget for 2021 today, according to administration officials. The budget calls for increased funding for infrastructure and defence while slashing funds for foreign aid and safety-net programs.
- Today’s economic calendar eyes meagre. Confidence data are due in the EMU. Italy discloses December’s industrial production numbers while Norway publishes price data for January. Later today, several Fed speeches are due
Currencies: EUR/USD Stays In The Defensive
EUR/USD stays in the defensive
On Friday, USD trading was driven by two potentially divergent factors. The rebound of risky assets (after the corona driven sell-off) slowed. The congruent rise in core/US yields earlier last week was a USD supportive. Still, the dollar stayed well bid even as it didn’t get further interest rate support. Investors remembered strong USD data (ISMs, ADP) going into the payrolls. The payrolls were solid (225k job growth, a modest 0.2% rise in AHE). The market reaction was limited. The dollar made some swings after the release, but finally kept recent gains. EUR/USD (close 1.0946) finished near the lowest level in almost four months. USD/JPY still failed to regain the 110 barrier in a sustainable way (close 109.75).
This morning, most Asian indices show modest losses. There are still plenty of headlines on corona, but the impact might become less dominant as a driver for (FX) trading. China outperforms. After a soft start, the yuan rebounded back below USD/CNY 7.0. China CPI jumped to 5.4% Y/Y. The reaction was limited as it was mainly due to food prices. The PBOC keeps measures to support the economy in place. The Aussie dollar also rebounded and returned to the AUD/USD 0.67 area. USD/JPY trades with a slightly upward bias (110.80). EUR/USD stabilizes in the mid 1.09 area.
Today, there are few US and EMU data. Later this week, the US CPI (Thursday) and retail sales (Friday) are interesting. The Fed’s Powell will testify before Congress. Apparently, the German political crisis (Thuringia) won’t derail for now. However, this is probably not enough to provide any support for the euro. Of late, the dollar outperformed. The USD both profited from higher yields as risk sentiment improved and was also supported by solid data. EUR/USD dropped below the 1.0981 support, deteriorating the technical picture and opening the way for a full retracement to 1.0879 (2019 low). A return above 1.1120 would call off the ST alert, but we don’t see a trigger for that.
On Friday, sterling trading was technical in nature as there was little important news. Uncertainty on the EU-UK trade negotiations caused some GBP-caution. EUR/GBP closed at 0.8491. There are mostly a bit ‘old-dated’ UK eco data this week. They probably won’t help sterling much. Still we expect better news ahead. For now, more EUR/GBP consolidation might be on the cards.
EUR/USD: technical picture deteriorates after 1.0980 break
