- Rates: US non-manufacturing ISM and German court ruling are key today
The April US non-manufacturing ISM will show the full impact of lockdown measures, but quite some (short term) negative eco news is probably discounted. Risk sentiment remains key for trading. A German court ruling on the legality of the ECB’s bond buying programme is a wildcard. - Currencies: EUR/USD rebound fizzles
Last week’s remarkable EUR/USD outperformance didn’t last long. Yesterday, a risk-off sentiment pushed the pair back lower in the 1.0727/1.1018 consolidation pattern. The German court ruling is a source of uncertainty but a better risk sentiment might slow the EUR/USD decline. EUR/GBP continues technical trading north of 0.87.
The Sunrise Headlines
- US stocks staged a comeback to notch a slight gain despite concerns over a reigniting US-China tensions. The tech-heavy Nasdaq outperformed (1.23%). Asian markets rise although Japan, China & SK are closed for public holidays.
- The RBA left its cash rate target unchanged at 0.25%, stands ready to scale up bond purchases & decided to widen the range of securities for its daily market operations to include ones issued by non-banks with investment grade ratings.
- The Texas Railroad Commission has dropped an effort to force oil producers to slash output in order to boost crude prices after running into opposition from leading energy companies.
- The US Treasury plans to borrow a record $3 trillion of debt this quarter to fund multiple stimulus efforts Congress has passed to resuscitate an economy brought to a standstill by the corona-pandemic.
- The Trump administration is turbocharging its push to remove global industrial supply chains from China as it weighs new tariffs to punish China for its handling of the corona-pandemic while warning to comply with the phase 1 trade deal.
- France and the Netherlands have issued a joint call for tougher enforcement of environmental and labour standards in EU trade deals through higher tariffs against countries scorning sustainable development commitments.
- Today’s economic calendar is quite thin, containing the US non-manufacturing ISM that should more fully reflect the blow of the coronavirus and Swedish GDP figures. The UK taps the bond market.
Currencies: EUR/USD Rebound Fizzles
After a strong performance last week, EUR/USD yesterday again traded more in line with usual risk-dynamics. European equities had a ‘negative catching up’ to do and this weighed on the euro. Rising US-China political and trade tensions were also euro negative. Uncertainty on a German court ruling on the ECB’s APP maybe caused investor caution toward the single currency too. EUR/USD trended lower in the 1.09 big figure closing at 1.0907. The yen continued recent outperformance against the dollar. USD/JPY closed at 106.74.
This morning, several Asia (Japan, Mainland China, South Korea) are closed for regional holidays. Most markets that are open join the late session rebound on WS yesterday. The off-shore yuan rebounds modestly after the recent sell-off (USD/CNH 7.12 area). The Reserve Bank of Australia left its policy unchanged. The Bank reiterated that it won’t raise rates until inflation is sustainably on target and until employment is making progress to full employment. This won’t be fulfilled anytime soon. Even so, the Aussie dollar remains most of its recent gains with AUD/USD trading in the 0.6450 area. The yen again slightly outperforms, despite in a risk-on context (USD/JPY 106.60 area).
Today, the eco calendar is thin, with the US services PMI and the non-Manufacturing ISM the exception to the rule. The surveys will register the full impact of the lockdowns an probably print at highly distressed levels. However with markets focus on a gradual reopening of the economy, the FX reaction might be most. Today, a German Court will rule on the ECB APP programme. Any limitations on the ECB’s room of manoeuvre might cause some nervousness on European markets and the euro, but we assume that a workable solution will be found.
EUR/USD regaining the 1.09 area slightly improved the ST picture, but yesterday’s price action illustrates that sentiment remains fragile. For now, we see no compelling reason for a sustained EUR/USD rally. We expect more consolidation in the 1.0727/1.1018 range. A better risk sentiment might slow yesterday’s EUR/USD decline today.
Sterling initially remained in the defensive yesterday, with EUR/GBP filling offers north of 0.88. However, an improvement in global markets sentiment finally reversed earlier sterling losses. For now sterling is still mainly driven by global sentiment rather than UK-specific news. The day-to-day momentum might stay EUR/GBP negative, but the 0.8675/0.87 remains a solid support after the recent sterling rally.
EUR/USD: euro can’t keep positive momentum. ST consolidation pattern stays in place
