Sunrise Market Commentary
- Rates: Range bound trading going into the weekend?
Traded volumes are expected to remain low today with US trading desks thinly staffed on “Black Friday”. A strong German IFO and progress in German formation talks (SPD) could be slightly negative for the Bund, but we expect today’s moves to occur within very tight ranges. Correlations between bond markets and equity or oil markets were very loose of late. - Currencies: EUR/USD holds within reach of 1.1880 resistance
The US currency remained in the defensive yesterday after soft Fed Minutes on Wednesday. The USD decline slows in Asia this morning, but EUR/USD stays resilient and holds within reach of 1.1861/80 resistance. Today’s eco calendar is thin and US trading desks might be thinly staffed. More technically inspired trading might be on the cards
The Sunrise Headlines
- US stock markets were closed yesterday for Thanksgiving Holiday. Traded volumes are expected to remain low today at “Black Friday”. Asian stock markets trade mixed overnight. Yesterday’s Chinese sell-off doesn’t persist.
- Ireland is facing a political crisis with opposition parties calling for the head of the deputy PM over an escalating policing scandal with fears growing for an early election. Taoiseach Varadkar declared his support for his number two.
- British households are their least confident since immediately after last year’s Brexit vote, partly because of this month’s interest rate hike and further signs of a slowdown in the housing market, a survey showed.
- UK officials tried to accelerate Brexit negotiations by suggesting that rather than wielding its veto next month, Ireland could hold fire and block a final accord if it wished, three people familiar with the talks said.
- China said it will further cut import taxes for a wide range of consumer goods including several categories of baby formula, in a bid to boost consumption.
- Japanese manufacturing activity expanded at the fastest pace in more than three years in November as output, new orders, and new export orders all accelerated in a sign the economy will continue its growth streak.
- Today’s eco calendar is very thin with only German Ifo business sentiment and US PMI’s. ECB Nouy is scheduled to speak
Currencies: EUR/USD Holds Within Reach Of 1.1880 Resistance
Will EUR/USD 1.1880 resistance hold?
Global/FX trading shifted into a lower gear yesterday as US markets were closed in observance of Thanksgiving. The dollar remained in the defensive after Wednesday’s soft Fed minutes. The euro was slightly supported by strong EMU PMI’s. EUR/USD came close to 1.1861/80 resistance, but a real test didn’t occur. The pair closed the session at 1.1851. USD/JPY hovered in the lower half of the 111 big figure.
Overnight, Asian markets show again a diffuse picture. Most regional indices trade near opening levels. Mainland China slightly underperforms, but losses are smaller than yesterday and indices rebound toward the end of the session. Investors ponder the potential impact of selective deleveraging actions by Chinese officials. The dollar tries to regain slightly ground after a two-day setback. USD/JPY trades in the 111.50 area, but the US currency fails to make any progress against the euro. EUR/USD trades in the 1.1850 area.
The US eco calendar contains the Markit PMI business confidence report, but it is no market mover. US trading desks will still be thinly staffed today (Black Friday). In the euro area, the German IFO business confidence index is expected to have stabilized at a multi-decade high. After the very stronger EMU PMI’s, released yesterday, we are inclined to expect an upward surprise, even as the IFO performed relatively better than the PMI of late. A strong German IFO release is in theory positive for the euro, but the good news should already be discounted after yesterday’s PMI’s. Markets might also keep an eye at German politics. Global sentiment is a wildcard. Of late, global uncertainty, via lower core yields, often weighted more on the dollar than on the euro. For now, US equity futures show no signs of stress
Dollar sentiment remains fragile after Wednesday’s soft Fed-minutes. We see no trigger from further USD losses today. However, the jury is still out. We look out whether US yields and the dollar find a bottom after the recent setback. Over the previous days, we kept the working hypothesis that the EUR/USD 1.1861/80 area would be difficult to break and that the high interest rate differential between the US and Europe would at least help to prevent further USD losses. This hypothesis is not yet rejected, but remains under pressure
From a technical point of view, EUR/USD set a post-ECB low two weeks ago but regained since intermediate resistance at 1.1690/1.1837. The 1.1880 MT correction top was left intact. A break above the latter would suggest a full retracement to the 1.2092 top. We don’t preposition for such a scenario, but pressure is rising. On the downside, the 1.1554 reaction low remains the first important reference, but it is far away. We look for confirmation that 1.1861/80 resistance will be able to do its job, before adding EUR/USD short exposure. Partial stop-loss to defend a break higher might be considered. The USD/JPY momentum was positive in October, but deteriorated this month. Last week’s drop below the 112.96 support reinforces the downside pressure. On Wednesday, USD/JPY dropped below the 111.65 neckline. If confirmed, it would make the picture outright USD negative.
EUR/USD rebound slows, but 1.1880 range top stays within reach
EUR/GBP
EUR/GBP trending higher within established range
Sterling traded with a slightly negative bias yesterday. UK Q3 GDP growth was confirmed at 0.4% Q/Q and 1.5% Y/Y. CBI November retail data printed much stronger than expected. The data hardly impacted sterling trading as the focus remained on the Brexit process. UK and EU negotiators are said to prepare a document on the progress in the run-up the December EU summit, but there was no concrete news. EUR/GBP finished the session at 0.8905 (from 0.8871). This moves was at least partially the result of the EUR/USD rally. Cable closed at 1.3309 (from 1.3325).
Sterling remains in the defensive overnight. A YouGov survey indicated that UK consumer confidence reached the lowest level since the Brexit referendum. An Irish government crisis might complicate the Brexit process. Progress on a solution for the Irish border is a condition to move to the next stage of the Brexit negotiations and Ireland has a de facto vote on this issue. There are only second tier UK eco data today. Markets will continue to look for headlines from Brussels. UK PM May joins a EU summit with six East European countries, but Brexit will be discussed in the sidelines of this event. Of late sterling was in some kind of wait-and-see modus. There are signs of progress, but it remains unsure whether the EU Summit mid-December will be able to give a green light for the next step in the negotiations. For markets/sterling, the outcome of this process is a binary risk. So one can expect more erratic trading as long as uncertainty persists. A further rise of the euro might also slightly support EUR/GBP.
MT view/technical picture. A BoE driven sterling rebound ran into resistance early this month. Sterling declined again as markets anticipated that the rate cycle would be very gradual and limited. Brexit headlines cause day-to-day gyrations. EUR/GBP trades in a 0.8733/0.9033 consolidation range. Last week’s 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, but momentum of sterling rebound slows
