- Rates: German 10-yr yield approaches 1st resistance at -0.37%
German Bunds continues underperforming US Treasuries as the EC seems to grab momentum to lift some tax authority to the EU level to pay for its proposed recovery scheme. Risk sentiment is key today. US social unrest encompasses and economic and health risk as well. We don’t take Asian optimism this morning for granted. - Currencies: EUR/USD’s rally shows signs of fatigue
EUR/USD neared 1.1167 resistance yesterday but a real test didn’t take place. DXY declined below the key 98.27 support. Global sentiment is key today for trading. We’re cautious as tensions build on several fronts which might keep a lid on EUR/USD from a daily perspective while the pair awaits the ECB and payrolls. Sterling rallied but EUR/GBP 0.89 holds.
The Sunrise Headlines
- Wall Street ignored escalating protests in Main Street, eking out another gain. The Nasdaq (+0.66%) outperformed. Asian stock markets trade in the green. Japan (+1.5%) outperforms. US equity futures dip.
- US President Trump promised to deploy the army to quell the protests if the states’ National Guard would fail to do so. Meanwhile, several cities, including Washington DC have imposed curfews.
- Chinese government officials told large state-owned agricultural companies to halt purchases of American farm goods including soybeans, according to people familiar. It’s latest sign that rising US/Sino tensions put the trade deal in danger.
- The US manufacturing ISM rose a first time in four months in May from 41.5 to 43.1. Albeit still at very depressed levels, all components but imports and supplier deliveries printed a modest increase.
- The EU could target 70 000 large companies (sales exceeding €750 mln) for having access to the single market to help pay for the recovery programme, EU’s Budget Commissioner Hahn told in an interview to the FT.
- Gilead’s touted Remdesivir showed only a limited benefit in a large trial, data revealed yesterday. The Covid-19 medicine sparked a significant rally in risky assets after yielding “promising results” in an early-stage clinical trial.
- Today’s economic calendar eyes extremely meagre, leaving trading up to global sentiment as investors await US payrolls, non-manufacturing business confidence (ISM) and the ECB later this week.
Currencies: EUR/USD’s Rally Shows Signs Of Fatigue
EUR/USD’s rally shows signs of fatigue
Some European (cash) markets were closed yesterday for Whit Monday. There was little guidance from the US manufacturing ISM (43.1) which came in close to expectations. Social unrest in the US continued to escalate but with little impact on financial markets though, even as cities impose curfews with some warning it could hinder the reopening. Chinese state-run enterprises were instructed to halt purchases of some US agricultural goods. However, president Trump refraining from harsh sanctions during Friday’s much anticipated press conference is viewed more important. FX markets traded calmly. The US dollar lost some ground. EUR/USD eked out a choppy advance, nearing resistance around 1.1167 but closing eventually at 1.1136. USD/JPY went nowhere, closing marginally lower at 107.59. The trade-weighted dollar (DXY) slipped below key support (98.27) and closed at 97.83.
Overnight news flow is thin. Trump threatened to deploy the military to quell protests. Asian markets trade in the green this morning. The Reserve Bank of Australia kept both policy rates and the 3-yr yield target stable at 0.25%. The RBA said monetary and fiscal support is required for some time but thinks that the downturn might be less than earlier expected. The Aussie dollar trades unchanged near the 0.68 pivot. EUR/USD (1.1127), USD/JPY (107.72) and DXY (97.87) all trade muted.
Today’s event calendar is uninspiring. Trading will be dominated by global sentiment, which is fairly constructive. We’re cautious though. Tensions are building on several fronts and risk erupting at a time when a significant amount of good news has been discounted. EUR/USD had a strong run the past week as both the fundamental and technical picture improved. That upleg showed signs of fatigue as it neared resistance around 1.1167 yesterday (61.8% fibo retracement). The pair awaits guidance from the ECB on Thursday and US payrolls (Friday) but has its downside protected by a softer dollar after DXY’s technical break lower.
Sterling rallied from around EUR/GBP 0.90 to 0.891 yesterday. The pound put comfort from PM Johnson wanting to reset his agenda with a speech and financial statement. However, with difficult Brexit talks during this week’s fourth and final round, we’re wary for the move to extend (far) below the 0.89 support area
EUR/USD rally shows signs of fatigue as it nears resistance around 1.11667.
