• Rates: Cautiousness ahead of EMU PMI’s and German Ifo
    Risk-off prevails on markets again as the US-Sino trade spat continues to dominate trading. Core bonds profited with US Treasuries outperforming. EMU PMI’s and the German Ifo survey might offer some guidance today. AS risks are probably tilted to the downside, we expect core bonds to maintain their upward tendency.
  • Currencies: Will (poor) EMU data push EUR/USD for a test of the 1.1110 support?
    The dollar traded mixed as the trade ware intensifies. USD/JPY lost modest ground, but the dollar gained a few ticks against the euro. Today, the trade war will continued to dominated FX trading, but the EMU data have also potential to move the euro. A test of the EUR/USD year low might be on the cards in case of poor PMI’s/ifo. The sterling sell-off continues.

The Sunrise Headlines

  • Losses on US equities eventually remained contained to -0.4%. Asian bourses lose ground as well this morning with India outperforming (+2%) as early vote counting shows a majority for PM Modi. The Nifty 50 sets an all-time high.
  • FOMC Minutes of the May policy meeting revealed that many officials expected the recent soft patch in inflation to be temporary. The threshold to either raise or cut the policy rate is high.
  • The Japanese manufacturing PMI dropped back below the 50 boom/bust mark in May (49.6 from 50.2) with export orders falling at their fastest rate in four months. A subindex on future expectations turned negative.
  • South Korean newspaper Chosun Ilbo reports that the US government is lobbying not to use Huawei products, hoping US allies will also reject the Chinese tech firm’s goods.
  • Brent crude prices return towards $70/barrel after data showed that US crude stockpiles unexpectedly rose (+4.7m) to the their highest level in nearly two years (+476.8m barrels).
  • The Times hints that UK PM May will announce her departure from office tomorrow after a scheduled meeting with the chair of the conservative 1922 committee of backbenchers.
  • Today’s eco calendar contains May EMU PMI’s, German Ifo Business sentiment, US weekly jobless claims and new home sales. Spain taps the bond market. The UK holds European parliamentary elections.

Currencies: Will (Poor) EMU Data Push EUR/USD For A Test Of The 1.1110 Support?

Will data push EUR/USD for a test of 2019 low?

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Global trading (including FX) yesterday was again driven by the trade war, as investors pondered the impact of the US measures against Huawei. Still the moves developed orderly. The US dollar initially ceded ground, but recouped the loss against the euro in the US session. The Minutes of the May meeting showed that the Fed is firmly on hold. The report had little impact on the dollar. EUR/USD closed at 1.1150 (from 1.1161). The yen gained slightly with USD/JPY closing at 109.36.

The sell-off on Asian equity markets accelerates as investors see the impact of the trade war between the US and China filtering through in the activity of ever more businesses. The yuan is holding near recent lows (USD/CNY 6.9150 area), but for now Chinese authorities apparently want no further depreciation. The yen hardly gains despite the risk-off (USD/JPY 110.30 area). EUR/USD stays under modest pressure (1.1150).

Later today , the EMU PMI’s, the details of German Q1 GDP, and the Ifo business climate will be published. In the US, jobless claims and new home sales are on the agenda. The EMU data have most market moving potential. Any big miss in EMU data might further undermine confidence in the region and weigh on the euro. Positive EMU surprises will probably have less impact than negative ones. We also keep an eye at EUR/JPY in this context of a deteriorating global sentiment, even as the yen only profits modestly until now. EUR/USD has returned to the lower part of the 1.1265/1.1110 ST trading range. For now, the dollar retains the benefit of the doubt. Poor EMU data might push the pair for a test of the 1.1110 support. However, even in that scenario, we assume that further US gains will remain modest as the trade ware will also filter through into the US economy and as the US doesn’t want a (too) strong dollar.

Sterling continued to suffer as political uncertainty in the UK mounts. All parties in Parliament rejected May’s latest Brexit deal and the UK PM will probably have to quit in the near future. Next steps in the Brexit process are almost impossible to predict. EUR/GBP settled well above the 0.88 big figure. UK politics (including the outcome of the EU parliamentary elections) will dominate the (market) headlines. We stay cautions/negative on sterling. The EUR/GBP 0.8840 resistance is being tested; a break would bring the 0.90/0.91 area back on the radar.

EUR/USD nears the bottom of the 1.1265/1.1110 ST range

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