- Rates: German 10-yr yield bounces off first support
An improvement in US risk sentiment and technical factors weighed on core bonds yesterday. Today’s eco calendar centers around June ADP employment and manufacturing ISM. It will be hard to draw forward looking conclusions given the speed at which the COVID-19 virus currently blazes through the US. - Currencies: EUR/USD going nowhere in the low 1.12 area.
The dollar initially retained the benefit of the doubt yesterday, but at the same time didn’t regain important technical levels. USD trading is facing conflicting signals. A cautious sentiment is USD supportive, but the rise in US infections complicates its investment case. Sterling staged a technical rebound, but we don’t expect a sustained rebound
The Sunrise Headlines
- Wall Street inched higher in part thanks to a last-hour rally. The Nasdaq (+1.87%) outperformed. Asian markets trade mixed. Japan and South Korea are the region’s laggards following poor economic data.
- Japan’s Q2 Tankan index disappointed and showed a significant deterioration of both current and expected business conditions, across different sectors and company size as the virus struck. All series remain above the GFC lows however.
- Dr. Fauci of the US coronavirus taskforce warned lawmakers that cases in the US could rise to 100 000 a day if Americans do not change their behaviour. Cases nearly reached 44 000 as of yesterday.
- Italy is preparing a new fiscal stimulus plan worth 20 bln euros. If approved, as is expected later this month, it would push the 2020 budget deficit towards 11.6% of GDP vs. the earlier goal of 10.4%.
- US crude oil stockpiles declined 8.16m barrels last week, API reported. If confirmed by the EIA data, it would be the largest crude draw since December 2019. Oil prices rise about 1% this morning.
- The EU urges the UK to set out its plans for its state aid regime as the end of the transition period nears. Brussels wants reassurances that the UK will not undercut the EU economies unfairly.
- Today’s economic calendar contains the US ISM manufacturing index and ADP employment change for June. In the EMU, (final) PMIs are due. The Fed publishes its meeting minutes. Portugal issues a new 15 benchmark bond
Currencies: EUR/USD Going Nowhere In The Low 1.12 Area
EUR/USD going nowhere in the low 1.12 area.
The dollar retained the benefit of the doubt early in yesterday’s trading. Risk sentiment was unconvincing and some end of month repositioning probably was also still in play. The TW dollar (DXY) tested the 97.80 area and EUR/USD tested the 1.12 area. Sentiment improved later. US eco data were mixed. The Chicago PMI disappointed (36.6 vs 45 expected), but US consumer confidence beat expectations. US equities gained further momentum easing the bid for the dollar. A rebound in US yields only supported the risk-rebound of USD/JPY (close 107.93). EUR/USD in the end again showed no clear trend closing at 1.1234 (from 1.1242).
This morning, Asian indices show a mixed picture. Japan underperforms. The BOJ Q2 Tankan report confirmed that many parts of the economy are hard hit by to impact of the corona virus. (large manuf. index at -34 from -31 expected). The yen gains a few ticks (USD/JPY 107.65) but this is probably due to an overall less buoyant market sentiment. EUR/USD is losing modest ground (1.1220). Today’s calendar contains the final EMU manufacturing PMI’s, the US ADP report and the US manufacturing ISM. It will be difficult for (FX) markets to assess the outcome of ADP (rise in private jobs expected of 2.9 mln) after last month’s deviation from the payrolls. The ISM is expected to rebound further to 49.6 (from 43.1). This looks reasonable. However, the USD reaction will probably mainly be driven by global sentiment rather than by the data. Headlines on the spreading of the pandemic in the US currently are a mixed story for the dollar.
EUR/USD settled in a ST consolidation pattern near 1.12. The picture recently turned a bit more fragile/unconvincing, but the 1.1160 support area stayed out for reach. With global sentiment turning more shaky, EUR/USD might hold near current levels, maybe drift still slightly lower, but we see no case for a sustained USD comeback either.
In technical trading, EUR/GBP reversed most of the sharp short-squeeze that pushed the pair for a test of the 0.9180 area on Monday. EUR/GBP closed at 0.9060. BoE’s Haldane sounding positive on the recovery maybe helped the reversal. The calendar is thin today. We see yesterday’s rebound of sterling mainly as a correction on oversold conditions. Close-to-negative interest rates, a fragile global sentiment and more headlines on tough Brexit negotiations might cap sustained further GBP gains. We see EUR/GBP 0.90 as rather solid support
EUR/USD: no clear trend with conflicting factors still at work
