Rates: Neutral start to the trading week?
Rising oil prices helped erase initial core bond gains after a mixed US payrolls report. Core bonds eventually closed flat. Today’s eco calendar only contains second tier eco data while volumes could be low with UK markets closed. Speeches by Fed governors and developments on the geopolitical scene are a wildcard for trading.
Currencies: EUR/USD test of 1.1915/35 continues despite mixed payrolls
On Friday, the dollar showed good resilience even as the payrolls didn’t fully meet market expectations. EUR/USD tested the 1.1915/35 support and is still holding near that area this morning. We consider current context as USD neutral, but underlying euro softness still might keep EUR/USD near recent lows.
The Sunrise Headlines
- US stock markets closed the week on a strong note, ending more than 1% higher. Most Asian equity markets trade positive this morning with China outperforming and Japan underperforming.
- Iran, faced with a possible restoration of US sanctions, came out against higher oil prices, signaling a split with fellow OPEC member Saudi Arabia, which is showing a willingness to keep tightening crude markets. (BB)
- President Donald Trump’s legal team is striking a more combative tone with Robert Mueller, suggesting publicly that the president may decline to cooperate with the special counsel’s prosecutors. (WSJ)
- Conservative tensions over Brexit erupted again as a Business Secretary Clark fuelled speculation that May may be planning to revive a customs plan rejected by eurosceptic members of the government last week. (BB)
- The leader of Italy’s anti-establishment 5-Star Movement, Di Maio, made a last-ditch offer to the far-right League in a bid to break a political deadlock that has dragged on for more than two months. (Reuters)
- Atlanta Fed Bostic and SF Fed Williams, voting FOMC members, argued in favour of 2 more hikes this year, but said they were keeping an open mind on the total number of interest rate rises needed.
- Today’s eco calendar contains several Fed speakers, but only second tier eco data. UK markets are closed for Early May Bank Holiday
Currencies: EUR/USD Test Of 1.1915/35 Continues Despite Mixed Payrolls
Test of EUR/USD 1.1915/35 support continues
On Friday, US payrolls were mixed. The unemployment rate declined to an ‘impressive’ 3.9%, but job growth and AHE were mediocre. However, the dollar showed remarkable resilience and jumped even temporary to a new ST reaction top (against the euro and in the trade-weighted dollar). EUR/USD even tested the 1.1915/35 area. The USD rebound eased later in the session. EUR/USD closed the session at 1.1960 (from 1.1988). USD/JPY finished little changed (109.12). So, the impact of the payrolls on the dollar was modest. At the same time, US yields and the dollar could have ‘suffered’ more on the report. Regarding EUR/USD some underlying euro softness was probably still at play.
Overnight, Asian equities reversed initial softness. Most indices now show decent gains, with Japan underperforming. Geopolitical risk (Iran deal) remains a source off uncertainty, but for now markets still ponder what weight to give to the issue. Oil extends its rebound with Brent trading north of $75 p/b and WTI clearing the $70 barrier. Despite the rise in oil, the dollar is also holding up well. EUR/USD trades in the 1.1950 area. USD/JPY dropped temporary below 109 this morning, but also reversed this initial decline. So, global markets show somewhat of a diffuse picture this morning.
Today, there are few important eco data in the US or in Europe. Several Fed MPC members will speak. The will probably elaborate on the issue of ‘symmetrical’ US inflation target. As such, we consider this as the Fed at least temporary moving to a more wait-and-see policy stance. However, for now it has no noticeable negative impact on the dollar. Geological issues remain also wild card. We see the current context as rather neutral for the dollar. Even so, EUR/USD is holding near the 1.1915/35 support area. Ongoing euro softness still might help for investors to try a new downside test in EUR/USD. The case for a higher USD/JPY looks for less convincing.
On Friday, EUR/GBP hovered in the lower half of the 0.88 big figure. There were no important eco data. The internal rift within the UK Conservative Party on ‘ the nature of Brexit’ continued. This was still the case this weekend as UK Business Secretary Greg Clark indicated that a compromise on a customs union was still on the table. EUR/GBP is drifting back south this morning. We expect more sideways trading going into Thursday’s BoE policy meeting
EUR/USD: test of 1.1935/15 support continues despite mixed payrolls
