- Rates: Risk sentiment and technical factors remain in driver’s seat
Asian stock markets and core bonds are looking for direction this morning, which today’s eco calendar is unlikely to provide. The German Ifo is expected to rebound like PMI’s yesterday. The IMF’s new growth outlook will provide some grim lecture. Risk sentiment and technical factors will continue to set the tone for intraday moves. - Currencies: EUR/USD extends rally after good EMU PMI and on global risk-on
EUR/USD confirmed the bottoming process that developed earlier this week. Global USD weakness and some positive headlines on the EMU economy propelled the pair to the mid 1.13 area. We expect the EUR/USD downside to be rather well protected. EUR/GBP had a rollercoaster ride. Sterling still struggles even as the UK PMI brought some comfort too
The Sunrise Headlines
- US stocks ignored the ongoing rise in Covid-19 cases and pinned hopes on more fiscal stimulus instead. The Nasdaq (+0.74%) outperformed. Asian trading is muted and mixed with South Korea (+1.6%) outperforming.
- The EU may ban the US from entering the bloc when it reopens the borders July 1 because of its failure to contain the coronavirus outbreak, thereby putting it on par with Brazil and Russia.
- The RBNZ kept rates unchanged at 0.25%. The NZ central bank said it is not clear yet if they have eased enough to meet their mandate. It highlighted the NZ$ is pressuring exports and are exploring a broader range of monetary tools.
- US Treasury Secretary Mnuchin said the administration is considering a new stimulus package that could be passed in July. US President Trump is mulling the idea of handing out another round of checks to Americans.
- French President Macron and Dutch PM Rutte made progress during talks about the EU recovery proposal, the Elysee said. The Netherlands is one of the fiscally conservative countries that objects raising debt and transfer the cash.
- Dr. Fauci warned Congress of a “disturbing surge” in coronavirus cases and pressed for more testing. His comments came after the US posted the largest daily increase in almost 2 months with new records in several US Sun Belt states.
- Today’s economic calendar contains the German Ifo indicator. The IMF publishes its new 2020 growth forecasts. Fed’s Evans and Bullard are scheduled to speak. The US and German tap the bond market
Currencies: EUR/USD Extends Rally After Good EMU PMI And On Global Risk-On
EUR/USD extends rebound after better EMU PMI
After a ‘Navarro-related’ dip (comments that the China trade deal was over, later corrected by president Trump), EUR/USD turned north again, illustrating the current buy-on-dip bias. EMU PMI’s printing stronger than expected and a continuation of the global risk rally weighed on the USD and triggered a test of the 1.1350 area. The move slowed later as did US stock markets. Still EUR/USD closed at 1.1308 (from 1.1261 on Monday). USD/JPY developed a remarkably trading pattern. The pair jumped north of 107 after president Trump corrected the Navarro comments, but later followed the (‘risk-on’) correction of the dollar. The pair broke the bottom a ST consolidation pattern, closing at 106.52.
This morning, Asian markets show no clear trend as WS closed off the intraday highs. Investors still have to balance a further rise in corona infections (especially in the US) against the hope on a further reopening of the economy and ongoing monetary and fiscal stimulus. Still the USD remains in the defensive (DXY at 96.65). The Reserve Bank of New Zealand kept its policy rate unchanged at 0.25%. The bank still warns on downside risks even as the economy is recovering faster than expected. NZD /USD declined from the 0.6520 area to trade near 0.6465. EUR/USD is holding north the 1.13 level (1.1315 area). USD/.JPY gains marginally.
There are few eco data in the US today. German Ifo business confidence is expected to improve from 79.5 to 85.0. A positive surprise is possible even as the German PMI lagged the rest of Europe. A combination of resilient global equities, uncertainty on the spreading of the corona virus in the US and constructive headlines on Europe weighs on the dollar and is putting a ‘solid’ floor for the euro. Earlier this month, EUR/USD fell prey to profit taking, but first important support in the 1.1160 area survived. We expect that area to hold and gradually look for this week’s bottoming/rebound. 1.1350 intermediate resistance was tested yesterday. 1.1422 (June top) is next topside reference on the technical charts, ahead of the 1.1495 March top.
Sterling showed a roller-coaster ride yesterday. Sterling initially remained under pressure, despite a positive global risk sentiment and the UK preparing to ease the lockdown. The UK PMI (composite 47.6) were also materially better than expected. Even so, EUR/GBP filled bids in the 0.9075/80 area, just to reversed the rise late in the session. There are no eco data in the UK. We keep a cautious bias on sterling. We assume a quick/sustained turn below 0.90/0.8950 unlikely ST.
EUR/USD extends rebound after good EMU PMI
