- Rates: Some minor dovish twists from Fed governors?
Core bond gains were nearly completely erased during US trading hours, suggesting some fatigue to the corona trading theme. Today’s eco calendar only contains second tier US data, but FOMC Minutes and speeches by Fed governors are interesting. We are keen to see whether the corona outbreak already altered their outlook. - Currencies: Trade-weighted dollar nears 2019 top.
Yesterday, the EUR/USD came close to the 1.0778 next support. Euro weakness prevails. At the same time, the trade-weighted dollar nearing the 2019 top also indicates a solid (by-default?) bid for the dollar. It is unlikely that even a softer tone from Fed speakers will change the course of events for the dollar
The Sunrise Headlines
- WS dipped (up to -0.56%) as Apple’s sales warning sent a shiver through markets. Asian markets bounce back after a slight decline in new corona cases and China’s extra measures to back its economy. China outperforms (+0.94%).
- China is considering direct cash injections and mergers to bail out the crippled airline industry in a bid to fend off economic threats from the coronavirus epidemic, Bloomberg reported.
- Declines in Japanese exports narrowed for a third month in January (-2.6% Y/Y). Imports fell by a larger-than-anticipated 3.6% on the back of weaker demand. The data does not reflect yet the expected hit from the coronavirus.
- RBNZ governor Adrian Orr asserted New Zealand’s economy and monetary policy are ‘in a good position’, dampening expectations for further easing. The kiwi climbed against most of its peers following the comments.
- The US ramped up sanctions on Russian state oil major Rosneft. Washington targeted Russia over maintaining ties with the Venezuelan government of Maduro and aims to cut more Venezuelan crude from the market.
- US president Trump announced he’s working on a ‘major trade deal’ with India but doubts it will be wrapped up before the election. The US hopes to gain better access to India’s dairy & poultry market and lower tariffs on other goods.
- Today’s economic calendar is packed with inflation data due in Canada, the UK and Sweden. Minutes of the last FOMC meeting will be published. The Fed’s Bostic and Barkin are scheduled to speak. Germany taps the bond market.
Currencies: Trade-Weighted Dollar Nears 2019 Top
Trade-weighted dollar nears 2019 top.
Markets started with a risk-off bias yesterday after Apple warned it won’t meet its revenue targets due to the coronavirus. Still, this flaring up of corona related risk didn’t change global FX trading patterns. The EUR/USD downtrend continued. There was no one-on-one intraday link between the data and the EUR/USD moves, but a weak ZEW confidence and a better than expected Empire Manufacturing confirmed the divergence between the US and EMU economy. EUR/USD almost touched the 1.0778 support (April 2017 gap) to close at 1.0792. USD/JPY partially reversed the early risk-off decline, closing unchanged at 109.87.
The uncertainty on corona that weighed on Asian markets yesterday is again ebbing this morning. Equities rebounded on headlines that China might take additional measures to support sectors that are hit by the economic fall-out of corona (e.g. airlines). The yuan continues trading rather weak with USD/CNY holding just north of 7.00. At the same time, USD/JPY regained the 110 barrier (1110.15 area). EUR/USD (1.0795 area) remains within reach of the correction low.
Later today, the calendar is moderately interesting with the US housing data (starts and permits), PPI and minutes of the previous Fed meeting. Several Fed governors are scheduled to give their view. We expect the eco data to be intraday significant for USD trading, at best. Fed speakers might err to the soft side, but we doubt it will be a good enough reason to block the ascent of the dollar, especially against the euro. The current EUR/USD decline is mainly euro weakness, but the trade-weighted dollar is also nearing the 2019 top. 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.
Yesterday, sterling started rather soft against the euro, but EUR/GBP soon resumed its downtrend. The move was partially due to overall euro weakness. Solid UK labour data and hope of fiscal stimulus (budget to be proposed by new Fin Min on March 11) also supported sterling. Today, the UK price data will be published. The focus for sterling trading is more on growth than on inflation. Even so, we keep an EUR/GBP negative bias ahead of the UK retail sales and PMIs later this week.
USD (trade-weighted – DXY) nears 2019 top
