- Rates: Flurry of bad eco news vs recovery of oil prices
A flurry of bad economic news probably awaits today with EU leaders still at loggerheads over how to structure fiscal aid packages to tackle the current health crisis. For markets, it hangs in the balance with the fragile recovery on the oil market which started yesterday. - Currencies: EUR/USD trading sideways, holding north of the 1.0770 support
The dollar slightly outperformed yesterday even as sentiment on risk improved. Still, most major USD cross rates held within established ranges. Today, economic data probably will confirm the devastating economic impact of corona. The EU summit probably also won’t bring big positive news for the euro. Even so, we don’t expect a new, sustained EUR/USD downtrend.
The Sunrise Headlines
- WS regained lost ground as Congress is expected to pass the $484bn rescue bill and amid some better-than-expected corporate earnings. The Nasdaq out-performed (2.81%). Most Asian markets push higher, SK (1.5%) taking the lead.
- The ECB announced it will accept some junk-rated debt as collateral to ensure banks’ access to its ultra-cheap liquidity. The move comes amid fears for an expected wave of credit rating downgrades in response to the coronacrisis.
- Oil prices pushed higher after US president Trump stoked tensions with Iran, ordering US warships to “shoot down and destroy” Iranian vessels if they posed a threat, sending Brent crude back to $22 per barrel.
- Japan’s Jibun bank PMI slipped to 27.8 from 36.2 this month. The services sector took a hammering with the PMI sliding 10 points to a record low of 22.8 while the downturn in the manufacturing sector (43.7 from 44.8) gained speed.
- South Korea’s economy recorded its most severe contraction (-1.4% Q/Q) since the financial crisis as the coronacrisis hit consumer spending and trade slumped, and the worst is yet to come given the widening scope of the pandemic in Q2.
- Germany’s ruling coalition agreed on a fresh €10bn package of further measures to tackle the coronacrisis including increasing state wage support, a temporary VAT reduction for restaurants and tax relief for small companies.
- Today’s economic calendar is jampacked with PMIs due across Europe and in the US. We brace for another jump in US jobless claims. EU leaders will be discussing the bloc’s economic recovery path. Hungary taps the bond market
Currencies: EUR/USD Trading Sideways, Holding North Of The 1.0770 Support
EUR/USD holding tight range, stays north of 1.0770
There was no obvious link between global FX (USD) trading and the developments on other markets yesterday. Initially EUR/USD held strong in the upper part half of the 1.08 figure as global sentiment improved after the oilrelated sell-off earlier this week. Later, the dollar regained traction, even as equities rallied further. The move coincided with a rise in US yields, but we doubt this was a big factor as rate differentials didn’t change much. Euro caution ahead of today’s EU summit maybe played a role but we see the move mainly as order-driven, technical trade. EUR/USD closed at 1.0823 (from 1.0858). USD/JPY held recent very tight range to close the session at 107.75.
This morning, most Asian equity indices are trading in positive territory, but gains are modest compared to the WS rebound yesterday. Regional data were mixed (better than expected South Korean growth, but very week Japan PMI’s). Still the impact on yen was very limited. The Aussie dollar declined temporary after an awful PMI release (services at 18!) but the move was reversed later on a broader USD decline. AUD/USD (0.6330) is holding recent consolidation pattern (0.6250/0.6450 area).
Today, the EMU & US preliminary PMI’s and the US jobless claims are taking centre stage. The data will probably only illustrate the corona meltdown. Negative news might be slightly USD supportive, but we don’t expect a big market reaction. EU leaders will again discuss a corona stimulus package. The EC made a proposal, but a political consensus on a detailed package (including the structure of funding) is unlikely. Germany decided on an additional domestic fiscal support (€10 bln). Question is whether this is a euro supportive. It only illustrates the fragmented crisis approach. EUR/USD is going nowhere. The 1.0770 support stays within reach, but hasn’t been challenged of late. For now, we keep a neutral bias and don’t anticipate a big break lower.
Sterling reversed part of Tuesday’s sell-off yesterday as the risk-off eased and oil rebounded. EUR/GBP left behind the 0.88+ area to close the day at 0.8775. Today, the UK PMI’s and the CBI data are expected to show further (steep) declines. The data probably won’t be sterling supportive, but global sentiment probably will be more important for GBP trading rather than UK specific data. We keep the hypothesis that the EUR/GBP 0.8680/0.87 area should provide solid support
EUR/USD: holding tight consolidation pattern north of 1.0770 support
