- Rates: Asian market shrug of weak Chinese data
Risk sentiment improves this morning in Asia despite a historic Chinese GDP contraction and awful March retail, production and investment data. Progress in a clinical trial to fight the coronavirus and the US’s guidelines to open up America again, take the upper hand. We warn against joining the fragile market optimism. - Currencies: EUR/USD meets support at 1.084
WS ignored yesterday’s batch of awful US data and ended in the green as president Trump’s guidelines provided light at the end of the tunnel. Asian markets set aside the worst Chinese growth on record and focus on progress made in a US virus drug. EUR/USD enjoys support at 1.084. Sentiment is constructive but we wouldn’t read too much into it going forward
The Sunrise Headlines
- US equities eventually inched higher in a choppy trading session as a rally in tech stocks overshadowed dismal economic data. The Nasdaq outperformed (1.66%). Asian markets climb with South Korea (3.40%) taking the lead.
- China’s economy plunged 6.8% YoY in Q1, ending an era of uninterrupted growth dating back to the late 1970s. Fixed asset investment fell 16% while infrastructure investment dropped 20% and retail sales fell by 16% in March.
- Saudi Arabia and Russia vowed to closely monitor the oil market and flagged they may be open to additional output cuts after the last OPEC+ deal failed to put a halt to the oil price’s downward spiral.
- US president Trump unveiled broad new federal guidelines laying out a 3-stage approach for states to gradually lift social distancing measures in as soon as 4 weeks with the possibility of reimposing measures if corona infections flare up.
- France’s president Macron reiterated the EU needs to see ‘financial transfers and solidarity”, pressing the need for a EU common debt instrument with a common guarantee to rebuild the economy the bloc’s economy if it is to survive.
- Gilead’s experimental remdesivir drug has shown early positive signs in a clinical trial (rapid recoveries in fever & respiratory symptoms) that it might be effective in treating the coronavirus.
- Today’s economic calendar is extremely thin. The UK’s sovereign debt will be rated by Moody’s and France’s by DBRS. Investors eye another round of earnings releases.
Currencies: EUR/USD Meets Support At 1.084
EUR/USD meets support at 1.084
The initial upbeat sentiment at the start of European dealings gradually ebbed away yesterday. The US printing another awful batch of data (housing, jobless claims) added to the gloomy sentiment at the start of the US session. However, Trump releasing guidelines for a phased reopen – although rather strict – triggered a turnaround, providing light at the end of the tunnel. WS rallied into the green, despite poor data. The dollar stayed well bid nevertheless. EUR/USD declined from 1.091 to 23.6% fibo support at 1.084. USD/JPY eked out gains to 107.92. The trade-weighted dollar (DXY) closed just north of 100 (from 99.46).
The late WS rally continues this morning during Asian dealings. Markets set aside the worst Chinese growth (-9.8% q/q, -6.8% y/y) on record, adding more weight to news about (plans of) a gradual easing of the lockdown measures and the positive test results from a US Covid-19 drug instead. Asian stocks gain 1 to 3%. Upward pressure on the dollar eases amid risk-on with DXY again trading below 100 (99.82). EUR/USD’s 1.084 support area holds for now and keeps a cautious upward bias (1.0867). USD/JPY trades at 107.76.
Today’s economic calendar is already depleted following the Chinese growth publication, leaving trading up to technical factors and overall sentiment. Markets are again looking at the pandemic from the bright side today. This constructive environment could continue to underpin risky assets and cap the dollar’s upside potential. We would caution not to read too much in today’s moves as the impact of the virus is increasingly becoming clear. We also find ourselves still in a low-volume holiday setting. That is to change Monday. That said, the 23.6% fibo retracement (from March high to low) at 1.0839 did its job and launches EUR/USD back north. First resistance kicks in at 1.0926.
EUR/GBP showed very little direction yesterday. The pair ended a choppy session marginally lower near the 0.87 area. Sterling holds on to its gains quite easily, regardless of sentiment. We stick to our view that the recent decline in EUR/GBP stabilizes and a short term equilibrium has been found around 0.87. The return of Brexit prevents further sustained sterling gains while the euro has few reasons to cheer either.
EUR/USD: 23.6% support area kicks in.
