Sunrise Market Commentary
- Rates: Subdued trading ahead of FOMC?
Risks for today’s eco data are mainly tilted to the downside of expectations, but the figures will probably pass unnoticed ahead of tomorrow’s FOMC meeting. The start of the US refinancing operation could cause marginal underperformance versus the German Bunds. Overall, we expect trading to remain confined to small range and to occur in low volumes. - Currencies: dollar holding near recent lows
The dollar decline slowed yesterdady but the overall picture for the US currency didn’t improve. Today’s eco data will probably only be of intraday significance. Even so, disappointing US data might still push EUR/USD closer to the key 1.1714/35 resistance as markets look forward to the FOMC policy decision.
The Sunrise Headlines
- Asia Pacific traders largely adopted a wait-and-see approach after a muted start to the week on Wall Street ahead of Wednesday’s Fed meeting and awaiting some earnings releases from big-name tech companies.
- The July preliminary US manufacturing PMI was, at 53.2, higher than the expected 52.3 and the previous 52.0., The services PMI stabilised, as expected.
- Sales of US Existing Home sales declined by 1.8% in June after a rise of 1.1% in May (consensus of -0.9%). Tight supply and high prices constrained housing activity despite strong demand.
- President Trump made a plea to the US Senate Republicans to “do the right thing” and vote today to open a debate on an overhaul of Obamacare. It remains unclear whether McConnell will have enough votes to open the debate.
- The Bank of Japan minutes showed policymakers discussed how much information to disclose on a possible exit from QE, but close the discussion as the BoJ is still far of its 2% inflation goal.
- Brent oil extended its gains to around $48.90 a barrel as Saudi Arabia promised deep cuts to crude exports next month to ease the global glut. In addition, some signals are emerging that US shale producers are tapping the brakes on drilling.
- The main items on the eco-calendar today are the US consumer confidence (July) and the Richmond Fed manufacturing index (July) and German July IFO business confidence.
Currencies: Dollar Holding Near Recent Lows
USD holding near recent lows
Dominant FX trends that ruled trading recently halted yesterday. The dollar decline slowed and so did the rise of the euro. The pause in the euro rally was ‘justified’ by softer than expected EMU PMI’s. There was no high profile news to inspire a directional USD move. EUR/USD stabilized in the mid 1.16 area and closed the session at 1.1642. USD/JPY dropped temporary below 111, but closed the session at 111.10.
Overnight, Asian equities are trading mixed, in line with WS. ECB’s Mersch said he saw upward risks to EMU growth and that he’s more assured about a return of inflation to the target. At the same time he reiterated that policy accommodation remains needed. EUR/USD rebounded to the 1.1660 area on the Mersch headlines. USD/JPY stabilizes near 111.
Today’s eco calendar contains German IFO, US consumer confidence and Richmond Fed manufacturing. The IFO reached a multi-year top in June. A small decline from 115.1 to 114.9 is expected in July. We see downside risks given yesterday’s PMI’s. US consumer confidence (Conference Board) is expected to have weakened in July (116 from 118.9). Based on the more timely measures of confidence, we expect confidence to have weakened, maybe even more than the consensus forecasts.
Yesterday’s unexpected easing of the EMU PMI’s provided a good reason to slow the recent ascent of the euro. However, it’s far from sure that a softer Ifo will have a similar impact. The euro still enjoys a solid bit and the overall picture for the dollar remains fragile. Soft US consumer confidence even might push the dollar back to the recent lows going into tomorrow’s Fed policy decision. Even a test of the key EUR/USD 1.1714/35 resistance might be on the cards. On the US political scene, a new vote on the healthcare bill is a wild card. Any (unexpected) progress on the issue might be slightly supportive for the dollar. Even so, (FX) markets will maintain some kind of wait-and-see modus going into tomorrow’s FOMC decision. There is already quite some negative news discounted for the dollar after the recent setback, but we still see no trigger for a positive U-turn on the US dollar. For that to happen, the dollar needs really positive news. Good data might help to build a floor for the dollar, but might only come later this week (US GDP) and/or next week. For now, there is no reason to front-run on a positive reversal for the dollar.
USD: technical picture worsens further
EUR/USD rebounded above the 1.1300/66 resistance at the end of June. Recent data were not good enough to trigger a sustained USD rebound. Finally EUR/USD broke beyond the 1.1489/1.15 resistance, paving the way to the LT-correction tops at 1.1616/1.1714. A sustained break would end the long consolidation that followed the sharp decline of EUR/USD in 2014/early 2015. Such a key area is not easy to break. We don’t preposition for a break, but the pressure is mounting. Return action below 1.13 would be a first indication of a loss in upside momentum.
USD/JPY rebounded in the 108.13/114.37 range after the June 14 Fed meeting. The pair regained interim resistance at 112.13, but follow-through gains remained modest. USD/JPY 114.37 resistance was tested, but rejected. The pair is currently drifting lower in the broader consolidation pattern between 114.50 and 108.83/13. A test of the downside becomes more likely. A break below would probably be sign of a further deterioration on the global USD sentiment
EUR/USD: top MT consolidation pattern under heavy strain
EUR/GBP
EUR/GBP rally eases, but holding north of 0.89
Yesterday, sterling staged a technical rebound against the dollar and the euro, after Brexit bickering weighed on the UK currency last week. The eco news was intrinsically negative for sterling, but ignored. EUR/GBP closed the session at 0.8935. Cable returned north of 1.30.
Today, the CBI Trades orders will be published. A modest decline from 16 to 12 is expected. The series is timely in nature, but has limited market moving potential. A speech of UK Chief economist Haldane is a wildcard. End June, he indicated that the BoE should seriously look at the possibility of raising interest rates. Will he reiterate this view after recent softer than expected UK eco data? If he would turn more cautious on a rate hike, markets might consider that the BoE is returning to wait-and-see modus, a sterling nagative.
From a technical point of view, EUR/GBP broke above the 0.8854/66 resistance (2017 top) to set a new correction top north of 0.89, but the rally slowed at the end of last week A break below 0.8720 would suggest that upside momentum is easing. For now, we don’t see a trigger for a sustained rebound of sterling against the euro. We still look to buy EUR/GBP on more pronounced dips. For that to happen, EUR/GBP probably needs some help from a correction in EUR/USD.
EUR/GBP: consolidation near recent top
