Sunrise Market Commentary
- Rates: Consolidation ahead of ECB and payrolls
Today’s eco calendar contains only second tier eco data suggesting more consolidation on core bond markets with Thursday’s ECB meeting and Friday’s payrolls in mind. Risk sentiment on stock markets is a wildcard for trading. Will we finally get a real correction in the US, away from dazzling heights? - Currencies: Has post-Yellen USD correction already run its course?
Yesterday, the dollar found a bottom as last week’s correction petered out. A rebound of EUR/USD was blocked by political uncertainty in Europe. Today’s eco data might be mixed for the dollar. If sentiment on risk turns positive again, the dollar might gain slightly ground. EUR/GBP remains on an upward trajectory and is testing a next minor resistance.
The Sunrise Headlines
- US equities closed around 0.3% lower after partially overcoming some of the opening losses in an uneventful session. Overnight, most Asian stock markets eke out small gains with Japan underperforming.
- Australia kept interest rates unchanged as risks from Sydney’s soaring property prices outweighed subdued inflation. The RBA left the cash rate at 1.5% amid strong growth and trade performances in Q4 2016.
- British consumers are cutting back on non-essential spending as the impact of last year’s Brexit vote pushes up the cost of their day-to-day shopping, two surveys showed this morning (BRC & Barclaycard).
- German factory orders fell a much stronger than expected 7.4% M/M to be down 0.8% Y/Y, the biggest decline since 2009 on investment goods. The Ministry points to less big ticket items and is confident manufacturing remains on upward trajectory.
- China will strictly control local government debt quotas and step up checks on illegal debt guarantees, FM Xiao Jie said, as the country’s top officials stepped up assurances that they will keep financial risks under control.
- The IMF warned that high levels of household debt tied up in property are a risk to New Zealand’s financial stability and backed the central bank’s lobby for new tools to deal with the red-hot housing market.
- Today’s eco calendar only contains final Q4 EMU GDP and US Trade balance. Austria, Germany (I/L) and the US tap the market. The OECD publishes its interim eco outlook.
Currencies: Has Post-Yellen USD Correction Already Run Its Course?
Has USD correction already run its course?
On Monday, EUR/USD reversed early strength after Alain Juppe said he won’t run for president even as Fillion would step out of the election race. At the same time, the dollar gradually found a better bid after tentative early session softness. Even so, USD/EUR and USD/JPY stayed away from last week’s recovery top even as a March Fed rate hike is discounted. EUR/USD finished the session at 1.0582 (from 1.0622). USD/JPY closed the day at 113.89 from 114.04.
Overnight, Asian equity indices show modest gains despite a negative close in the US yesterday. The constructive equity sentiment is putting a floor under the dollar, but gains are negligible. EUR/USD is changing hands in the 1.0585/90 area. USD/JPY trades in 113.90 area. The RBA, as expected, left its policy rate unchanged at 1.5%. The bank acknowledged an improvement in global conditions and in domestic activity. So, any expectations for an additional rate cut are unjustified. AUD/USD rebounded from the 0.7580/90 area to the 0.7625 area.
Today, the eco calendar is again thin. The OECD is expected to upwardly revise its growth forecasts. In theory this might be supportive for core bond yields. Usually this supports the dollar more than the euro. Any market reaction will only be of intraday significance. The US trade deficit is expected to widen from $44.3 to $47.0. This has become a politically sensitive issue. A deficit in line or bigger than expected might trigger protection reactions from the Trump administration and weigh on the dollar. Political uncertainty in Europe remains a wildcard. In France, some short-term status quo has been reached as Fillon remains the Republican candidate. This is tentatively negative for the euro, but shouldn’t have any immediate further impact. In a daily perspective, the odds for USD trading are mixed. Last week’s buy-the-rumour, sell-the fact USD profit taking move looks finished. If sentiment on risk would again turn positive, the dollar might slightly outperform, but no important technical levels in EUR/USD (1.1494) or in USD/JPY (114.95 will be broken today.
Global context: Last week, the focus shifted from US fiscal policy to the Fed’s monetary policy, as the Fed prepared markets for a March rate hike. However, the dollar rally petered out as a March rate hike is now discounted. EUR/USD 1.0494 and USD/JPY 114.95 were tested, but no break occurred. Some ST USD consolidation might be on the cards. The payrolls are the next key issue for USD trading. USD/JPY 111.60/111.16 (Range bottom/38% retracement of the 99.02/118.66 rally) remains a key/ solid support. Last week’s correction suggests that it is too early for a break. In EUR/USD 1.0829/74 is the short-term line in the sand with intermediate resistance at 1.0679. A sell EUR/USD on upticks approach remains favoured.
EUR/USD: upside(USD) correction blocked. USD waiting for a trigger to resume uptrend?
EUR/GBP
Sterling softness persists
On Monday, EUR/GBP to a large extent copied the price pattern of EUR/USD. The pair spiked higher to the 0.8665/70 early in Europe, but the gain was reversed as the euro declined on Juppé’s statement. Still, sterling couldn’t fully profit for the euro softness. EUR/GBP closed the session at 0.8648. Cable also traded with a negative bias and finished the day at 1.2236. So, sterling shows a loss of momentum short-term as recent developments suggest that the BoE has a good case to keep a wait-and-see approach
Overnight, the BRC like for like sales declined slightly more than expected. The BRC sees an ‘undeniable trend of cautious spending on non-essential items. Later today, only the Halifax House prices will be published. The House of lords will have the final debate on the Brexit law. Markets will also look forward to the Budget Statement of UK Fin Min Hammond tomorrow. We see the day-to-day context/momentum as slightly sterling negative. Sterling sentiment has softened of late. The euro was in better shape at the end of last week, helping EUR/GBP to break the 0.8592 resistance, which improved the short-term EUR/GBP picture. We don’t expect the EUR/USD rebound to go far, but a combination of a temporary improving euro sentiment and ongoing sterling softness might trigger some further ST EUR/GBP gains. A sustained break north of 0.8645 might reinforce the ST positive momentum. Longer term, we keep a sterling negative view, as the Brexit will negatively impact the UK.
EUR/GBP: clears first resistance at 0.8592. 0.8645 resistance under test
