Rates: Technically-inspired trading ahead
Technically-inspired trading might be today’s recipe on core bond markets. Investors eye tomorrow and Friday’s inflation data. The negative impact of supply might be matched by some extension flows. The risk rally seems to be losing steam. Technical pictures of the US and German 10-yr yield suggest more upward potential within established trading ranges.
Currencies: EUR/USD rally to run into resistance
Yesterday, the dollar decline slowed after a strong US consumer confidence. Today, eco data will probably be second tier for trading. Global risk sentiment, the US-Canada trade talks and headlines on Italy might inspire EUR/USD trading. The jury is still out, but it looks like the EUR/USD rally is losing momentum
The Sunrise Headlines
- US stock markets closed yesterday’s session with marginal gains, with NASDAQ (+0.15%) slightly outperforming. Asian markets opened in green this morning, with China as the exception showing losses.
- Senior officials on both EU and UK side are said to have admitted that the chance of reaching a brexit agreement by the EU summit mid-October is very unlikely. They now aim to reach an agreement by mid-November.
- Canada is ready to negotiate with the US, as it re-joins Nafta-discussions after Mexico and the US struck a deal on Monday. The country has signalled it is ready to make dairy concessions, a key sticking point in negotiations.
- Yesterday’s announcement that Germany was ready to provide emergency financial assistance has been retracted. A German official said that his country is not considering a financial lifeline to help Turkey overcome their crisis.
- After meeting with Italian Interior Minister Matteo Salvini, Hungarian Prime Minister Viktor Orban said Europe needs a new European Commission and parliament that will protect the borders and put a halt to migration.
- Since 2014, the German government has run a budget surplus. Chancellor Merkel and her coalition partners have agreed to ease tax burdens on German citizens, by reducing the contributions to the unemployment benefit system.
- Today’s eco calendar contains barely anything, with only second readings of US GDP and Core PCE (QoQ) for the second quarter. Germany and the US tap the bond market.
Currencies: EUR/USD Rally To Run Into Resistance
USD correction to slow?
Yesterday, USD softness initially persisted, in line with Monday’s price action. Global sentiment remained constructive on the US/Mexican trade deal even as the reaction on European markets was more guarded than in the US. Still, EUR/USD temporarily regained the 1.17 level. Fortunes changed in favour of the dollar later. US data were mixed, but consumer confidence was strong. The S&P 500 and the Nasdaq touched new record levels, but the rally eased later. Interest rate differentials also widened slightly in favour of the US dollar. The trade-weighted dollar closed at 94.72, off the intraday low. EUR/USD finished at 1.1695. This morning, Asian equities are trading mixed. China underperforms. The dollar is trading off yesterday’s ‘bottom level’, but shows no clear trend. Later today, there are few EMU data. US Q2 GDP is expected to be revised slightly lower to 4.0% (from 4.1%), but probably won’t change fortunes for global (USD) trading. Global sentiment on risk and the US trade policy will remain the main drivers for USD trading. Regarding Nafta, there are tentative signs that Canada is considering making concessions in order to join the US/Mexican trade deal. A deal with Canada might be slightly supportive for risky assets and is in theory slightly USD negative. However, we don’t expect it to change the picture for EUR/USD or USD/JPY in any profound way. Headlines on Italy remain a potential (negative) wildcard for the euro. In a broader perspective, the dollar reversed the early August gain. EUR/USD returned in the previous 1.15/1.1850 consolidation pattern. The USD momentum eroded further after Friday’s comments from Fed’s Powell and due to a positive risk sentiment. The jury is still out, but the easiest part of this trade might be behind us. The EUR/USD rebound might slow. We assume that a EUR/USD break beyond 1.1791/1.1850 will be difficult.
Yesterday, EUR/GBP extended its break above the 0.9033/44 resistance. UK PM May downplaying the consequences of a no-deal brexit didn’t help sterling. EUR/GBP came close to 0.9100. The EUR/GBP rally might take a breather. However, sterling will probably remain in the defensive unless there is meaningful progress on brexit. This morning, headlines suggest that the EU and the UK are inclined to delay the deadline for a brexit deal from October to November. So uncertainty might persist. The sterling decline might slow temporarily, but the technical picture of EUR/GBP improved after the break beyond 0.9033/44. 0.9306 is the next high profile target on the charts
EUR/USD rally running into resistance?
