• Rates: Investors willing to buy into yesterday’s risk rally?
    President Trump granted the EU and Japan respite as he delayed the decision to impose auto tariffs. Core bonds temporarily lost ground, but maintain the upward bias of late. Given the outstanding bill with China, we err on the side of cautiousness too. The economic calendar offers some guidance today but is not expected to impact trading much.
  • Currencies: Euro profits only modestly as US considers to delay auto tariffs
    EUR/USD (& EUR/JPY) initially declined yesterday as sentiment was risk off. The tide turned on headlines that the US would delay hiking tariffs on European cars. EUR/USD rebounded back above 1.12, but the move isn’t really convincing. Today, sentiment on risk might remain fragile. More room for EUR/USD to drift back lower in the 1.1110/1.1265 range?

The Sunrise Headlines

  • US stock markets followed the European intraday swing higher and closed with 0.45% (Dow) to 1.13% (Nasdaq) gains. Asian bourses are less convinced this morning with only China and India posting modest gains
  • US President Trump will give the EU and Japan 180 days to agree to a deal that would limit or restrict imports into the US of automobiles and their parts, in return for delaying new auto tariffs, according to Bloomberg.
  • April Australian labour market data were mixed. Net job growth increased by 28.4k, more than forecast, but details show a decline in full time jobs. The unemployment rate rose to 5.2%, but was joined by a higher participation rate.
  • The US took dual actions that will effectively ban Chinese technology giant Huawei from selling to the US market and preventing it from buying semiconductors in the US that are crucial for the production process.
  • Chinese US Treasury holdings slipped by $10.4bn in March to $1.12tn. It was the first decline since November and the total stock has now hit the lowest level since March 2017.
  • The UK 1922 Committee, all backbench Conservative MP’s, will urge PM May to quit as soon as possible (before June 15). If she refuses, they would contemplate changing the rules to allow for another no-confidence vote.
  • Today’s economic calendar contains US housing starts & building permits, weekly jobless claims and Philly Fed Business outlook. ECB Praet, Weidmann, de Guindos, Coeuré and Fed Quarles, Kashkari and Brainard speak.

Currencies: EUR/USD Rally Slows As USD Doesn’t Lose Interest Rate Support, For Now

Currencies: Euro profits only modestly as US considers to delay auto tariffs

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Global trading (including FX) showed two faces. In Europe and early in US dealings, markets traded in risk-off modus. The euro suffered more than the dollar. Poor Chinese data and uncertainty on Italy caused modest EUR/USD (& EUR/JPY) selling. US retail sales and production missed expectations, but had limited impact on the dollar. Later, equities and the euro rebounded on headlines that President Trump would delay raising tariffs on European cars. EUR/USD rebounded north of 1.12, but gains were modest (close at 1.1201). USD/JPY reversed most of its earlier losses on the equity rebound and closed at 109.60.

This morning, Asian equities don’t join the rebound of Europe and the US yesterday. The US taking action against telecom companies on security issues reminds markets that the trade war is far from over. The yuan shows signs of stabilisation. China substantially reduced holdings of US Treasuries in March but for now it doesn’t hurt the dollar. EUR/USD hovers near 1.12. USD/JPY is losing a few ticks. Australia labour data were mixed, with solid job growth but at the same time, the unemployment rate rose to 5.2%. This keeps speculation on RBA rate cuts alive and weighs on the AUD (AUD/USD 69.15 area).

Later today, there are few data in Europe. In the US, housing starts and building permits, the Philly Fed business outlook and jobless claims will be published. Data will probably be of second tier importance. Downside surprises will fuel Fed rate cut speculation. In theory, this asymmetric bias should be USD negative. However, over the previous days, the dollar, in a risk-off context, proved again more resilient than was the case last week. So, the jury is still out. We don’t see a strong case for a sustained USD rebound, but in a day-to-day perspective, EUR/USD is losing momentum. The pair might cede some further ground in the 1.1110/1.1265 ST range. Further (risk-off inspired) losses of EUR/JPY might also weigh on the EUR/USD headline pair.

Yesterday, sterling declined further against the euro and the dollar. The lack of process in the Brexit process and growing uncertainty on UK PM May’s fate weighed on the UK currency. EUR/GBP rebounded above 0.87 and is testing the 0.8723 resistance. Yesterday’s story will still be at work today. UK PM May’s position as leader of the conservative party might again be in question at a party meeting. Further sterling losses might be on the cards. Next resistance beyond 0.8723 is see at 0.8840.

EUR/USD: euro profits only modestly from US delay on auto tariffs

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