- Rates: EU/US trade conflict enters new phase
US Treasuries underperformed German Bunds ahead of the US Treasury’s mid-month refinancing operation. The US 10-yr yield remains below 2.54% though. The EU/US trade conflict possibly enters a new phase which might harm risk sentiment today with Bunds outperforming US Treasuries. - Currencies: USD declines ahead of technical resistance and on rising oil price
The dollar declined off last week ST peak levels. Technical resistance capped further USD gains. Higher oil prices supported commodity currencies and was USD negative, too. USD trading will probably be technical in nature today. The US NFIB small business confidence, EU-US trade tensions and Brexit headlines are potential intraday FX movers
The Sunrise Headlines
- US equity markets were mixed yesterday with gains/losses varying between -0.32% (DJI) and +0.19% (Nasdaq). Asian equities are trading mixed as well, with most indices hovering near opening levels.
- The US is considering tariffs on $11bn of EU imports in response to EU subsidies to Airbus, rival of US based Boeing. The US cites the WTO’s finding that the aid to Airbus has “repeatedly caused adverse effects to the US”.
- UK PM May meets German chancellor Merkel and French president Macron today to discuss the request for a delay to the Brexit date from April 12 to June 30. Meanwhile, cross-party talks with the opposition Labour party continue.
- Israel goes to the ballot boxes today to decide whether current PM Netanyahu takes a record fifth term in office. According to the polls, he’s running neck and neck with his main contester Benny Gantz, a former military chief of staff.
- The Fed is set to change regulatory requirements for large foreign banks, loosening rules for smaller banks but tightening the rules for banks that hold over $250bn in US assets. The Fed also eased rules for big US banks.
- Rating agency Fitch downplayed fears over the ‘extensive’ growth in “triple-B” debt piles, as companies have taken advantage of cheap borrowing costs, but recognises the risks for this type of debt in case of a lengthy economic downturn.
- Today’s eco calendar is rather empty. The US prints its March NFIB small business optimism, while Italy releases the February retail sales. The IMF updates its World Economic Outlook. Germany and the US tap the market.
Currencies: USD Declines Ahead Of Technical Resistance And On Rising Oil Price
Technical resistance blocks further USD gains
The dollar fell prey to profit taking yesterday. EMU and US data had limited impact USD trading. Technical considerations prevailed. USD bulls saw no trigger to push the TW dollar (DXY) beyond the 97.50/75 resistance as there is no reason for the Fed to leave its soft wait-and-see bias soon. The EUR/USD 1.12 support also proved resilient of late. A rise in commodities (oil) and commodity related currencies was also weighing on the US dollar. EUR/USD closed at 1.1263 (1.1216 on Friday). USD/JPY reversed part of the intraday losses in line with US equities and US yields to close the day at 111.48 (from 111.73). Asian shares mostly show modest gains even as risk sentiment is dampened by the US considering imposing tariffs on European goods to retaliate for EU subsidies to Airbus. For now, the impact on the euro (EUR/USD 1.1267) is limited. USD/JPY is losing a few ticks (111.35). Commodity currencies remain well bid with the Aussie dollar (AUD/USD 0.7135) and the Canadian dollar (USD/Cad low 1.33) outperforming.
The eco calendar is again thin. The US NFIB small business confidence is expected little changed at 102. The report is no market mover. Maybe there is a slight risk of further USD losses in case of a negative surprise. We also look out for any fall-out from the lingering EU-US trade dispute. If anything, it should be euro negative. Key meetings of UK PM May with German Chancellor Merkel and French president Macron are a wildcard and so is the IMF update on its world economic outlook. However, a downgrade on (EMU) growth shouldn’t come as a surprise any more.
Last week, EUR/USD came close to the 1.1177/87 support, but a real test/break didn’t occur. For that to happen, unexpected negative EMU news or surprisingly strong US data are needed. Recent data evidence doesn’t support this scenario. We keep the view that a sustained EUR/USD break lower isn’t evident as we don’t expect the Fed to leave its wait-and-see bias anytime soon. For now, EUR/USD is locked in the 1.12 big figure. In a day-to-day perspective, we doubt there is much ammunition for yesterday’s EUR/USD rally to continue right now.
Sterling still traded with a tentative negative bias yesterday as the political deadline of April 10/12 is coming ever closer. EUR/GBP returned north of the 0.86 barrier. UK PM will meet Chancellor Merkel and President Macron today. As negotiations between the conservative party and labour haven’t yield any results yet, the UK is probably heading for a long Brexit delay. This would avoid a no deal Brexit, but we see this scenario as rather neutral for sterling as uncertainty on the way forward regarding Brexit will persist.
EUR/USD rebounds off 1.12 on USD softness
