- Rates: Q1 earnings to determine market sentiment
Asian stock markets don’t build on Friday’s WS momentum. Core bonds remain in demand. The eco calendar is meagre, suggesting corporate earnings might determine sentiment. Focus turns to EMU PMIs and the EU Summit on Thursday. Global plans to reverse the current lockdown are slowly taking shape, but are far from being implemented. - Currencies: Dollar to keep ‘by default’ bid? EUR/USD picture remains fragile
On Friday, USD trading was a bit erratic as the usual risk-on/risk-off correlation was rather loose. This morning, sentiment on risk is less buoyant compared to the end of last week, with the dollar showing tentative signs of strength. At the same time, the technical picture of EUR/USD still looks fragile, with the 1.0770 support still not that far away.
The Sunrise Headlines
- US equities bounced on Friday on plans to reopen the economy and hopes of a potential drug to treat COVID-19 boosted sentiment. The DJ outperformed (2.99%). Asian markets turn cautious with Australia (-1.4%) a standout decliner.
- The PBOC slashed lending rates again, cutting the 1-yr LPR by 20 bps to 3.85% and the 5-yr LPR by 10 bps to 4.65%. Additionally, the Chinese government pledged more stimulus is in the works to combat the coronacrisis.
- US oil (WTI) cratered to a 21-year low of $14.47 p/b as the current futures contract (May) nears expiration, adding to mounting concerns on evaporating demand and the resulting pressure on storage for excess oil.
- The WH announced it’s nearing a deal with Congress on a new coronavirus response bill that replenishes the small-business relief programme by another $300bn and provides additional funds for hospitals and coronavirus testing.
- The ECB and European Commission officials are pondering a eurozone bad bank to remove non-performing loans (NPLs) from banks balance sheets that risk clogging up banks’ lending capacity at a critical time.
- The US Treasury revealed it’s temporarily delaying import tariff payments for 90 days due to economic hardship triggered by the coronacrisis, though the relief won’t apply to anti-dumping or countervailing duties.
- Today’s economic calendar eyes meagre while earnings season is in full flood. The EU and the UK hold a second round of post-Brexit trade negotiations. BoE’s Haldane and Broadbent are set to speak. Belgium taps the bond market
Currencies: Dollar To Keep ‘By Default’ Bid? EUR/USD Picture Remains Fragile
EUR/USD: picture remains fragile
The (trade-weighted) dollar on Friday hovered up and down around the 100 pivot. There wasn’t a clear story behind the moves. The usual risk-off/risk-on correlation hardly explained the intraday swings. Still the dollar finished near the lower bound of the intraday range (DXY 99.78) as US equities closed with solid gains. EUR/USD rebounded off an early dip (close 1.0875), but the broader picture stays fragile. USD/JPY ended at 107.54, holding the lower part of recent consolidation pattern.
Asian equities aren’t really able to build on the solid WS gains late last week. A further decline in the (WTI) oil price is a negative for global risk sentiment too. The PBOC lowered the 1-y PLR to 3.85%. The yuan (USD/CNY 7.0765 area) rebounds slightly after soft start. The TW dollar is trading little changed (99.85 area). USD/JPY gains a few ticks (107.85) despite a cautious risk sentiment. EUR/USD is trading in the 1.0865 area. The kiwi dollar outperforms. The New Zealand government announced it will ease lockdown restrictions next week (NZD/USD 0.6040).
Today’s economic calendar contains few data with potential to move global FX trading. Investors are trying to assess the pace of the restart of the economy in Europe and the US. Maybe, guidance from companies reporting Q1 earning might get some more weight in shaping global sentiment than is usually the case. Even as the link between the dollar and risk sentiment was a bit diffuse last week, we see some ‘by default’ USD strength at the start of week. US equities already recouped quite a big part of the initial corona-related losses. A pause in the equity rally might support the US currency. The same applies to the decline in the oil price. EUR/USD still struggles to hold north of the 1.0839 level (23% fibo retracement). Next key support comes in at the 1.0770 area. For now, we don’t see a trigger for a quick and forceful EUR/USD rebound.
EUR/GBP also developed a rather erratic directionless trading patter near the 0.87 level on Friday. This week, the negotiations on the future relationship between the EU and the UK restart, but there are no signs that the political stalemate will be solved anytime soon. The issue was no big factor for EUR/GBP trading of late as the UK currency was in rather good shape. Even so, we hold on to the neutral bias on the EUR/GBP cross rate and expect more range trading near the 0.87 pivot.
EUR/USD stays in the defensive. 1.0770 support area might come in play
