- Rates: US markets closed for President’s Day
US markets are closed for US President’s Day today which will severely reduce traded volumes. Asian risk sentiment is mixed this morning with China outperforming thanks to monetary and (pledged) fiscal stimulus. Today’s thin EMU eco calendar suggests order-driven trading within technical ranges. - Currencies: EUR/USD stabilizes near 3-y low
The euro decline slowed on Friday but the technical picture remains fragile. Later this week, we look out whether/to what extent the corona outbreak weighs on EMU economic confidence. If so, the euro might stay in the defensive. In the UK, a series of eco data will give a more timely update on the economy. A post-election rebound might keep sterling well bid
The Sunrise Headlines
- WS swung between gains and losses Friday, eventually extending its streak of records (0.20%, Nasdaq) amid solid eco data and better than expected Q4 earnings. Asian markets are trading mixed with China outperforming (2.63%).
- The PBOC provided 200bn yuan medium-term funding to banks and cut the interest rate it charges by 10bps to 3.15% to cushion the Chinese economy from the coronavirus outbreak. The finance ministry also pledged fiscal stimulus.
- The Japanese economy shrank 1.6% (Q/Q) in Q4/2019, the deepest contraction in 5 years. The economy suffered from October’s sales tax hike and typhoons, dampening domestic consumption (-2.9%) and investments (-3.7%).
- Hungarian PM Viktor Orban warned of difficult times ahead for the economy hampered by a stagnation in the euro area and pledged corporate and labour tax cuts after the government cut its growth forecast for 2020 from 4% to 3.5%.
- The USTR announced it’s raising tariffs on Airbus planes imported from the EU from 10% to 15%, effective March 18. The aerospace giant said in a statement it deeply regrets the decision as it further escalates US-EU trade tensions.
- BoJ’s Kuroda marked the coronavirus the “biggest uncertainty” for the economy and disclosed the central bank would consider “additional easing steps without hesitation” if the virus threatens the Japanese economy, Sankei reported.
- Today’s economic calendar is little inspiring. Euro area December construction output is due. EU foreign ministers are set to meet (general and foreign affairs council) and ECB’s Lane speaks. US markets are closed for President’s Day.
Currencies: EUR/USD Stabilizes Near 3-Y Low
EUR/USD stabilizes near 3-y low
On Friday, a promising calendar failed to overthrow reigning FX trading patterns. German/EMU Q4 growth were weak but EUR/USD stabilized in the mid 1.08 area. US retail sales and production were unconvincing. Michigan consumer confidence stayed strong. The dollar lost temporarily a few ticks, but EUR/USD still closed at 1.0831, the strongest since April 2017. The equity rally paused as markets pondered the balance between the economic fall-out of corona versus a favourable context of expected prolonged policy stimulus. USD/JPY held a tight sideways range in the upper part of the 109 big figure (close 109.78).
This morning, Asian/Chinese equity markets extended gains as the PBOC lowered the funding cost for medium-term loans and added liquidity to the market. Still the yuan gains marginal ground (USD/CNY 6.98 area). Japanese equities underperform and the yen weakens slightly after the country reported an unexpected sharp contraction in Q4 (-1.6% Q/Q) after the sales tax hike. USD/JPY is trading near 109.85. EUR/USD hovers in the 1.0835/40 area.
Trading will probably develop in rather thin market conditions today as US markets are closed for President’s Day. There are few eco data in EMU today. Later this week, we keep an eye at EMU confidence indicators, including German ZEW confidence (Tuesday) and the EMU PMIs Friday. Will uncertainty on corona put further pressure on the outlook for the EMU economy (and for the euro)?
The EUR/USD technical picture deteriorated substantially after breaking subsequent supports, including the 1.0879 2019 low. 1.0778 is the next reference (2017 gap). The pair is moving into oversold territory, but this factor alone is unlikely to trigger a rebound. A rise above the 1.0900 area would be a first tentative sign that pressure might be easing.
On Friday, EUR/GBP stabilized north of 0.83. Sterling maintained most of the gains against a weak euro for earlier last week. Investors hope that fiscal stimulus will support UK growth. This morning, UK house prices (Rightmove) were solid (0.8% M/M). Later this week, we receive an in extenso update on the UK economy with labour data, CPI, retail sales and confidence data. A rebound in activity/confidence after the election might support the sterling bid, despit the noise on the EU-UK trade talks
EUR/USD: technical picture deteriorates after 1.0879 break.
