Sunrise Market Commentary
- Rates: Absence of strong trading themes
Today’s eco calendar is uneventful. The prospects of new German elections could cause an outperformance of Bunds versus US Treasuries. Risk sentiment remains a potential market driver as well. Later this week, EMU eco data will play first fiddle while US trading is expected to slow down to a trickle with Thanksgiving and Black Friday looming. - Currencies: EUR/USD drifts cautiously lower in technical trade
Yesterday, EUR/USD declined partially due to uncertainty on German politics. The dollar profited slightly from a growing interest rate support. There are few important data to guide trading today. The dollar might gain slightly further ground against the euro. Sterling rebounds as the UK government might do some further concession in the Brexit negotiations
The Sunrise Headlines
- US stock markets traded with a small upward bias to end the session 0.1% higher with the Dow outperforming (+0.3%). Asian risk sentiment is positive with Japan (+1%) and China (+1.5%) outperforming.
- German Chancellor Merkel said she’d rather face new elections than govern without a majority, betting that voters won’t blame her after four-party talks on forming a coalition collapsed.
- Theresa May won ministerial backing for her plan to break the deadlock in Brexit talks next month, but Eurosceptic colleagues warned that any increase in the UK’s “divorce bill” offer to at least €40bn must be conditional on it securing a transition deal and a good trade agreement with the EU.
- Paris (European Banking Authority) and Amsterdam (European Medicines Agency) have been chosen as the new homes for two prized EU agencies, after ministers in Brussels resorted to picking names from a hat to decide where the two organisations and their combined 1,000 staff should move after Brexit.
- Australia’s central bank warned of ‘considerable uncertainty’ about how quickly wages growth and inflation might pickup, as it left interest rates at record lows for more than a year.
- The ECB will probably make small tweaks to its guidance on monetary policy next year rather than any major change in language, officials familiar said.
- Today’s eco calendar remains thin UK public finance data and US existing home sales. Finland and the US tap the market. ECB Coeuré speaks
Currencies: EUR/USD Drifts Cautiously Lower In Technical Trade
USD profits slightly from rising interest rate support
Yesterday, trading in the major USD cross rates, especially in EUR/USD, was quite volatile. EUR/USD dropped sharply in Asia due to the collapse of the German coalition talks, but the move was undone in early European dealings, as European (equity) markets recouped opening losses. Later, EUR/USD returned south. The risk of new German election still might have played a role, but the move included also USD strength as interest rate differentials widened in favour of the dollar. EUR/USD closed the session at 1.1735 (from 1.1790). The gains in USD/JPY were modest (close: 112.62).
Overnight, risk sentiment turned remarkably positive. Most Asian indices show decent gains, with China outperforming. Even so, the positive risk sentiment had again no positive impact on USD/JPY. The pair trades in the mid 112.50 The dollar is also losing a few ticks against the euro. EUR/USD trades in the 1.1750 area. The Aussie lost slightly, as the RBA sounded quite dovish, worrying about low wage rises. AUD/USD trades at about 0.7545.
Today, eco calendar remains thin. Markets might keep an eye at the US Existing Home sales. Sales are expected to have stabilized in October (5.40 M annual rate), after a sluggish rebound in September. We side with the consensus view. The market impact, if any, will only be second tier.
Yesterday, there was no clear theme/driver to guide trading in the major US cross rates. The impact of the German political crisis on the euro was a bit diffuse. In the end the dollar did win on points, but the gain was mediocre given the high/rising interest rate support. Sentiment on risk and technical considerations will remain the drivers for USD trading in a market were liquidity becomes thinner in the run-up to Thanksgiving. We maintain a cautiously negative bias on EUR/USD and assume that the 1.1861/80 area will be difficult to break. The dollar profited only modestly from the rising interest rate differential of late. At the same time, the high yield spread should at least make investors cautious to be USD short, giving the USD currency downside protection.
From a technical point of view, EUR/USD set a post-ECB low two weeks ago, but the move petered out. EUR/USD last week regained intermediate resistance at 1.1690/1.1837, but the 1.1880 MT correction top was left intact. A break above the latter would suggest a full retracement to the 1.2092 correction top. We don’t preposition for such a scenario unless real negative news from the US pops up. On the downside, the 1.1554 reaction low remains the first important reference, but it is still far away. A downside correction within the 1.1554/1.1880 range is favoured. The USD/JPY’s momentum was positive in October, but deteriorated this month. The pair tested the 114.49 MT range top, but the attempt failed. Recent price action was unconvincing despite solid US interest rate support. Last week’s drop below the 112.96 support reinforces the downside pressure. 111.65 is the next key support. A break would turn the picture outright USD negative.
EUR/USD: Drifting lower within 1.15541.1880 area?
EUR/GBP
Sterling rebounds as UK considers Brexit concessions
Yesterday, sterling ended the session mixed. It rebounded against the euro partially due to overall euro weakness trigger by the German political crisis. Initially the new flow on Brexit remained mixed as EU’s Barnier repeated that the UK has to come with workable solutions, including for the issue of the Irish border. The market took comfort as the UK government agreed to double the amount of the Brexit separation bill. EUR/GBP closed the session at 0.8865 (from 0.8923). The gain in cable (close at 1.3235) was modest as the dollar strengthen later on.
Today, the monthly UK public finance data and the CBI trends orders will be published. Order data are expected to improve slightly in November from -2 to 3 after a substantial decline last month. We side with consensus. Yesterday, sterling profited from the UK Brexit concessions (see higher). We don’t expect a formal reaction for the EU anytime soon. Evens so, the cautious positive momentum of sterling might continue short-term. EUR/GBP might decline a bit further in the 0.9033/0.8733.
MT technical: Recently, the BoE driven sterling rebound ran into resistance and sterling declined again as markets anticipated that any rate cycle would be very gradual and limited. EUR/GBP trades in a 0.8733/0.9033 consolidation range. Last week, the EUR/GBP rebound ran into resistance just ahead of the 0.9033 range top. We changed our ST bias on EUR/GBP from positive to neutral last week. The 0.9015/33 area might be tough to break short-term.
EUR/GBP: topside test rejected. Room for a further technical rebound of sterling?
