- Rates: US 30-yr yield breaks 1.5% resistance
The US yield curve steepened further with the 30-yr yield breaking above 1.5% resistance which served as the upper bound of the past two months’ trading range. Risk sentiment remains positive this morning, adding pressure on core bonds. ECB statistics showed a normalization of PSPP purchases in May. - Currencies: Dollar decline continues
A global positive risk sentiment is causing investors to reducing safe haven USD holdings that were accumulated during the corona crisis. Political and social uncertainty in the US currently is no important factor for USD trading. EUR/USD regained the 1.1167 resistance, further improving the technical picture in this cross rate.
The Sunrise Headlines
- Another green close on WS yesterday thanks to a sprint in the final hour. The Dow Jones (+1.05%) outperformed. Asian stocks rally in lockstep. South Korea (> +3%) outperforms.
- South Korea plans a third round of massive fiscal stimulus worth almost $30 bn to prop up its economy. Previous support packages amounted to roughly $10 bn each. Part of the stimulus will be specifically redirected to the technology sector.
- The EC is working on a white paper due this month in which it will suggest new ways to review and potentially block takeovers of European companies by foreign enterprises that are seen having received unfair (state) support.
- Except for open borders, New Zealand could return to normal as soon as next week, provided that recent changes did not trigger a rise in coronavirus cases. Prime minister Ardern said she’ll decide on the matter next Monday.
- Australian Q1 GDP contracted -0.3% q/q, the first growth decline in 9 years, taking annual growth to the lowest since 2009 (1.4% y/y). The country’s Treasurer expects the first technical recession since the early ‘90s in Q2.
- Chinese Caixin services PMI jumped to 55.0 (47.3 expected), up from 44.4 in April and the highest since Oct. 2010. The composite PMI rose to 54.5. Earlier this month, the manufacturing gauge rose to 50.7 (vs. 49.4 in April).
- Today’s economic calendar contains the US ADP job report and ISM non-manufacturing confidence. Unemployment figures are due in the EMU. Germany taps the bond market while Italy is likely to issue a new 10y benchmark.
Currencies: Dollar Decline Continues
Dollar decline continues
The ongoing risk rally confirmed a series of technical breaks on FX markets yesterday. The trade-weighted-dollar end last week broke the 98.64/27 range bottom and continues its decline this week. USD/JPY the exception to the rule as the risk-on also weighs on the safe haven yen. EUR/USD surpassed the 1.1167 resistance (close at 1.1170). The prospect of a new fiscal stimulus in Germany maybe reinforced the EUR/USD rebound. USD/JPY (close 108.68) also broke out of recent narrow consolidation pattern. Eco data again were hardly of any importance for global FX trading.
This morning, sentiment on Asian markets remains constructive even as social and political tensions in the US continue to linger. The China Caixin services PMI jumped from 44.4 to 55, suggesting a broadening of the recovery. A third fiscal package in South Korea adds to the positive sentiment. The yuan opened strong, but reversed gains soon (USD/CNY 7.1120 area). The rally of the Aussie dollar continues (AUD/USD 0.6940 area), albeit at a slightly slower pace. The Australian economy contracted 0.3% Q/Q in Q1. EUR/USD is testing the 1.12 big figure. Today’s EMU April labour data probably won’t have much impact on the euro. In the US, ADP private employment is expected to have declined another 9 mln in May. Of late eco data were no important driver for the dollar. However, given current fragile US sentiment, a weak figure might weigh additionally on the US currency.
Global dollar softness and some positive political/fiscal developments in Europe triggered an impressive EUR/USD rally. Several risks both inside and outside Europe at some point might return. Still, in a daily perspective, we see no reason to fight the trend. The break of 1.1167 resistance further improved the technical picture. We see intermediate resistance at 1.1237 and 1.1292 ahead of the 1.1495 March top.
Sterling maintained last week’s gain against the euro yesterday but didn’t profit further from the risk rally. After an brief dip, the pair soon returned to the 0.89 area. A positive sentiment in theory is sterling supportive, too. However, given current euro strength and a persistent stalemate in the EU-UK talks, we expect the EUR/GBP downside to remain rather well protected. EUR/USD 0.8860 is a first support.
EUR/USD clears 1.1163/67 resistance, improving the technical picture
