- Rates: Better safe than sorry ahead of the long weekend
US weekly jobless claims are today’s eye-catcher and will hit a multi-million level again. Fed Chair’s Powell view on the economy won’t be rosy. Add an EU at loggerheads on fiscal aid and the uncertainty factor of the long weekend ahead and it’s probably wise to take a defensive approach. That could benefit core bonds today. - Currencies: (Trade-weighted) dollar stabilizes near 100 as global FX stress eases
Global FX trading markets developed in an orderly, calm fashion. Smaller currencies kept recent gains. The dollar stabilized. EUR/USD reacted only modestly to the failure to reach an agreement on an EU corona response. US data, even if negative, probably won’t hurt the dollar much. Investor caution ahead of the long weekend might slightly favour the US dollar today
The Sunrise Headlines
- US equities surged as investors were optimistic coronavirus cases may be close to peaking. The Dow Jones (3.44%) outperformed. Asian markets are mostly higher with India (+2.35%) leading gains while Japanese markets drop (-1.25%).
- An OPEC+ deal to curb production and stabilize energy markets appears to move closer within reach after Russia pledged it is ready to cut output by 1.6 million bpd, equivalently to roughly 15% of current output.
- US Democrats called for Congress to push through an additional stimulus package of $500bn to prop up loans to small businesses, provide additional funds to hospitals & state/local governments, and increase food stamp benefits.
- Bernie Sanders dropped out of the US presidential race clearing Joe Biden’s path to the Democratic nomination and a showdown with President Donald Trump in November after a string of losses crippled Sanders’ campaign.
- Poland’s ruling Law & Justice party is ‘seriously considering” nationalizing the country’s pension funds in search for resources to combat the coronacrisis, Gazeta Wyborcza reported.
- ECB’s policymaker and head of the French CB Villeroy said severe deflation in the eurozone could prompt central banks to deploy more radical steps such as printing money and giving it directly to companies to fight the coronacrisis.
- In today’s economic calendar US jobless claims take centre stage. Fed Chair Powell is scheduled to give an economic update via webcast and the crucial OPEC+ meeting takes off with hopes on a deal. Italy taps the bond market.
Currencies: (Trade-Weighted) Dollar Stabilizes Near 100 As Global FX Stress Eases
Trading on global markets developed in a rather calm, orderly fashion yesterday and this bias was also visible in the currency markets. The euro spiked temporarily lower early in the session on the confirmation that the EU finance ministers failed to reach an agreement on a fiscal response to corona on an EU level. However, there was no follow-through price action. Intra-EMU spreads gradually eased from an initial widening and EUR/USD settled in a sideways trading pattern in the mid 1.08 area (close 1.0858). The trade-weighted dollar stabilized in the lower half of the 100 big figure. An ongoing positive sentiment, in particular in US equity markets, prevented a new USD rebound. Smaller currencies mostly also maintained Thursday’s gains. At least for now, it looks that the level of stress in global FX markets is easing.
This morning, Asian equity markets mostly show modest gains with Japan underperforming. Sentiment remains constructive even as news on the development of the corona virus is mixed at best (e.g. Singapore). The tradeweighted dollar (DXY) is holding just north of the 100 level. USD/JPY (108.95) is trading with a mildly positive bias, but holding with its short-term consolidation pattern. The Aussie dollar maintains recent constructive bias and regained the 0.62 level.
Today, the US jobless claims and consumer confidence deserve some attention. However, of late, poor US data seldomly were a negative for the USD. Fed’s Powell giving an economic update is a wild card. The discussion on the EU fiscal response remains a (modest) euro negative, but we maintain the view that global risk sentiment and the overall risk-on/off dynamics in global USD trading remains a main driver for EUR/USD trading. Last week, EUR/USD falling below 1.09 deteriorated the technical picture. The pair tested 1.0775/70 support, but no clear break occurred. The March low comes in at 1.0636. We continue to watch the TW USD. The USD might stay well bid, but we don’t expect a rebreak beyond 103. EUR/USD rebounding above the 1.0950 area would be a first sign of improvement. In a day-to-day perspective, investor caution going into the long weekend might be slightly USD positive.
Yesterday, EUR/GBP returned to 0.8750 area, but recent lows/support survived. GBP (cable) trading is also USD driven. Even so, sterling recently often outperformed against the euro when the dollar declined. We don’t see strong (economic) reasons for a further EUR/GBP decline, but a break below 0.8740 would be technically relevant.
EUR/USD: 1.0770/75 support area holds, for now. Investors still await EU fiscal answer
