Rates: Event risk looms large
The German 10-yr yields break below 0.15%, suggests a further slide towards 0% or lower. Risk sentiment will be reliable for today’s intraday gyrations amid an empty eco/event calendar. Investors might take a cautious start as event risk looms large this week with US-Sino trade talks, a brexit vote and the US Congress budget talks deadline.
Currencies: Dollar continues challenging recent ST high
The EUR/USD decline slowed temporary on Friday, but in the end the dollar maintained the benefit of the doubt as several pending event risks continue to spook global investors. Today, global sentiment and technical considerations will again dominate USD trading. EUR/USD 1.1290/67 is the next support that is coming on the radar.
The Sunrise Headlines
- US equity markets closed mixed and little changed on Friday. Asian equities are trading mixed this morning as well, with Chinese indices outperforming after being closed for a week-long holiday. Japanese indices are closed for the day.
- US Congressional talks on border security funding broke down over the weekend. The political deadlock rises the chances of a new government shutdown, that will take effect if no compromise is reached by Friday.
- UK PM May agreed to have a fresh round of talks with Labour leader Jeremy Corbyn to discuss a soft Brexit. Corbyn’s proposal would keep the UK tied to Single market and locked in a customs union with the EU. (Bloomberg)
- Italy’s Dept. PM Salvini’s League party emerged as the strongest party after regional elections in Abruzzo, according to a local news agency. The party is said to take 29% of the votes, compared to 18% for coalition partner 5SM.
- Moody’s lifted Russia’s credit rating to investment grade (Ba1 to Baa3), after it was downgraded to junk in 2015. The country’s finance ministry vowed further action to entice fresh capital. The rating is now par with S&P and Fitch
- IMF’s new chief economist Gita Gopinath has backed the US Federal Reserve’s view to pause interest rate hikes and endorses the data-driven approach. She said the shift in Fed policy will provide a lot of support for the global economy.
- Today’s economic calendar is rather thin. The US remains empty while the UK prints 4th quarter GDP results, next to consumption and trade data. ECB’s VP Luis de Guindos speaks in Madrid.
Currencies: Dollar Continues Challenging Recent ST High
USD continues to challenge recent ST top
The EUR/USD decline that reigned for the whole of last week slowed temporarily on Friday. EMU eco data were second tier and mixed. A first test of the 1.1325 area was rejected. Early in US dealings, it looked that the some end of week profit taking on EUR/USD shorts could be on the cards. However, a persistent fragile risk sentiment blocked the EUR/USD rebound. EUR/USD even returned to the week lows and closed at 1.1323. USD/JPY finished marginally lower at 109.73.
This morning, Asian indices are trading mixed with several markets reopening after Lunar New Year holidays, but Japanese markets are closed today. In thin holiday trading, USD/JPY tries another attempt to test/regain the 110 barrier. EUR/USD (1.1325 area) continued to hover near recent lows. (FX) markets are pondering the next moves in the US-China trade talks that will continue this week. In thin Asian markets, there was some kind of a brief ‘mini-flash-crash’ of the Swiss Franc this morning. EUR/CHF spiked temporary to the 1.14+ area, but soon returned to well-known territory in the 1.1325 area.
There are only second tier data in the US and Europe. So, global risk sentiment, influenced by headlines on the China-US trade talks, on global growth and on a potential new US government shutdown, will set the tone for FX trading. The trade-weighted dollar is still testing the 96.67 neck-line/resistance, but a clean break didn’t occur yet. Still it looks that the dollar retains the benefit of the doubt as long as the pending event risks continue to weigh on markets.
Over the previous 10 days, EUR/USD was captured in a gradual, but protracted downtrend as disappointing EMU data outweighed the late January soft U-turn of the Fed. The day-to-day momentum is USD supportive & euro-cautious. EUR/USD 1.1290/67 is next support ahead of the 1.1218 Nov low. After recent news/decline, quite some euro negative news should be discounted. That said, for now there is no trigger in sight to reverse the USD-positive/euro negative momentum.
EUR/GBP was locked in a narrow range in the mid 0.87 area Friday. The positive impact of Thursday’s BoE statement was worked out and there was no new Brexit news. Today, UK Q4 GDP and December production data are interesting, but the focus is on the UK-EU Brexit talks. A potential new vote in the UK Parliament on Thursday is the next point of reference for sterling trading. For now, we assume more technical trading around current levels
EUR/USD nearing the 1.1290/67 support area