Rates: US and German 10-yr yields at/approaching 1st resistance
The US 5-yr yield pierced through the upper bound of sideways trading range in place since June on Friday, while the US 10-yr and 30-yr yields tested similar resistance. Today’s eco calendar features no strong triggers to force a break. German Bunds could underperform in technical trading. The German 10-yr yield is gradually moving towards 0.5% resistance.
Currencies: dollar to maintain benefit of the doubt as trade tensions resurface?
On Friday, EUR/USD couldn’t maintain a constructive momentum. The 1.1730/51 resistance remains firmly in place. Today, trade tensions might again become the dominant driver for FX trading as markets expect the US president to raise tariffs on China again. In the recent past, this environment often supported the dollar
The Sunrise Headlines
- US equity markets ended mixed on Friday with only marginal gains/losses (+/-0.05%). Asian markets lose ground with China suffering hard from new US tariff threats. Japanese markets are closed
- US President Trump has instructed to proceed with additional tariffs on Chinese products. Talks between the countries, aimed to ease trade tensions, are now at risk as China indicated not to participate in case of new tariffs.
- At a G20 meeting in Argentina on Friday, the trade and investment ministers said in a joined statement that there is an “urgent need” to improve the World Trade Organization to counteract growing trade tensions around the world.
- The EU is discussing a new option for the Irish border. Instead of putting EU inspectors at the border, they would consider to allow British officials in charge of checking goods that are headed for Northern Ireland.
- Greek Finance Minister Tsakalotos said that his country is planning to further loosen capital controls soon, in a move to complete the second pillar of regulations, concerning cash withdrawals and the opening of bank accounts.
- The central bank of China has lent $38.5bn to financial institutions through its one-year medium-term lending facility (MLF), at unchanged rates. The move was surprising, as no MLF loans were due to mature this morning.
- Today’s US eco calendar is very thin, with only the Empire Manufacturing gauge for September in the US. For the EMU ,we receive the final inflation numbers of August and ECB’s Coeuré and Praet speak. Belgium taps the bond market
Currencies: Dollar To Maintain Benefit Of The Doubt As Trade Tensions Resurface?
Trade tensions to support the dollar again?
On Friday, the dollar started the session on a soft footing as global risk sentiment remained positive. The euro maybe still felt some support after rather upbeat comments from ECB’s Draghi on Thursday. EUR/USD filled bids in the 1.1720 area but a test of the 1.1733 resistance didn’t occur. US August retail sales disappointed. The dollar tried a shy down-move upon the release, but the topside in EUR/USD proved tough. USD bulls soon came again in control. Later, market optimism eased on headlines that Trump might impose additional import tariffs on China soon. EUR/USD finished at 1.1625. USD/JPY closed the week at 112.04. This morning, Japanese markets are closed. Asian equities are mostly trading in negative territory as fear on an escalation in the China-US trade war is returning to the forefront. EUR/USD hovers in the 1.1630 area. USD/JPY is holding near 112. Today, the eco calendar is thin. In the US, the Empire manufacturing index is expected to ease slightly from 25.6 to 23, but this still indicates healthy growth. Global FX trading will probably again be dominated by the headlines on trade policy. Rumours suggest that the US president could announce additional tariffs as soon as today. Of late, the reaction of markets to further steps in the US-China trade war was often modest. Even so, a further escalation will probably still trigger a standard risk-off reaction. EM-currencies and the yuan might come under pressure. The impact on EUR/USD might be more modest, but the dollar might still maintain the benefit of the doubt. From a technical point of view, EUR/USD neared the 1.1733/51 resistance, but no real test occurred, keeping EUR/USD in the established consolidation band. For now, we don’t see a trigger for a break. A decline below the 1.1530 area would indicate that the dollar is gaining some momentum.
On Friday, EUR/GBP mostly hovered in a tight range in in the low 0.89 area. Sterling gained a few ticks at the end of the day, with EUR/GBP closing at 0.8895. Poltical comments over the weekend suggest that the UK and the EU are stepping up effords to reach a deal. Key question remains whether PM May can convince enough pro-Brexit members of her party. For now, sterling is gaining some momentum, but we don’t expect the move to go very far as long as there is no clear indication that PM May will receive enough political backing
EUR/USD: 1.1733/51 resistance looks solid, for now