- Rates: Pressure on US 10-yr yield (2.01%-)support intensifies
Friday’s profit taking move didn’t last long with core bonds back in the driver’s seat. Geopolitical concerns, downside risks to US consumer confidence and a dovish anticipated Powell speech provide more short term tail wind. The pressure on key support on the US 10-yr yield (2.01%) is becoming bigger and bigger. - Currencies: Powell to send EUR/USD into next resistance area?
EUR/USD extended last week’s uptrend yesterday, stopping short of capping the 1.14-handle. Today’s event calendar might prove a chance for the couple to sneak towards the next resistance area (1.1450). Sterling is expected to remain in the defensive as the Tory election campaign heats up.
The Sunrise Headlines
- US stock markets ended mixed (Dow) to slightly lower (S&P, Nasdaq) yesterday as geopolitical worries linger. Asian stock markets are downwardly oriented as well with China (up to -2%) underperforming.
- US President Trump imposed new sanctions on Ayatollah Khamenei and eight senior military commanders. Iran responded that these measures closed the path to a diplomatic solution.
- Two senior MEP’s of Spain’s opposition party Ciudadanos have resigned over the party’s pull to the right and veto over working with Spanish Socialist PM Sanchez. The split adds to the deadlock in place since April general elections.
- Dallas Fed Kaplan, non-voting FOMC member, believes that at this stage it is too early to judge whether trade and global growth uncertainties are to persist in a manner that leads to a material deteriorate for US eco growth.
- The gold price rose to its strongest level since 2013, around $1424/ounce with geopolitical tensions, ultralow yields levels and dollar weakness boosting bullion.
- The Polish overhaul of the supreme court, which forced a third of its judges in early retirement and gave the ruling Law and Justice party powers of the judiciary, broke EU law according to the European Court of Justice.
- Today’s economic calendar contains US S&P housing data, Richmond Fed manufacturing index, new home sales and consumer confidence. Several central bankers, including Fed Chair Powell, speak. Italy and the US tap the market
Currencies: EUR/USD Extends Gain Beyond 1.1350, Improving The Technical Picture
Fed’s Powell to push EUR/USD to next resistance?
Follow-through euro buying in the wake of better than expected EMU PMI’s kept EUR/USD on an upward trend yesterday. The couple was little affected by a further deteriorating German Ifo business climate (97.4). It found support in narrowing US/German yield spreads instead as prospects of Fed rate cuts continue to weigh on US yields. Together with more sideline dollar positioning ahead of the G20 at the end of this week, EUR/USD’s advance stopped short of capping the 1.14-handle (1.1399, up from 1.1369). USD/JPY oscillated near opening levels and eventually closed virtually unchanged at 107.30.
Sentiment in Asia dented this morning. Geopolitical tensions rise after the US initiated a new batch of sanctions on Iran’s supreme leader and other top officials. Iran’s foreign ministry said that any new sanctions “mean the permanent closure of the diplomatic path with the US”. Trump is also said to consider withdrawing from post-war Japan defense pact that he thinks treats the US unfairly, adding more jitters to an already fragile trade environment. EUR/USD holds up well however, trading close to 1.14. The Japanse yen profits with USD/JPY slipping below 107.
Economic data is rather scant today. The US Conference Board consumer confidence is expected to decline from 134.1 to 131 in June. Risks are tilted to the downside due to a sharp increase over the two previous months. The poor payrolls earlier this month strengthens our case for a negative surprise of this labour market sensitive indicator. We therefore expect the dollar to remain in the defensive in the run-up to an important speech by Powell this evening. Will the Fed chair confirm markets view of a July rate cut? If he does we might witness the dollar (and US yields) to edge lower. EUR/USD recently regaining the 1.1350 area improved the technical picture in this cross rate. Next resistance is seen in the 1.1450 area.
The pound lost additional ground during a mostly technical trading session yesterday with EUR/GBP closing at around 0.895. The Tory leadership campagne is gaining traction; debates between Johnson and Hunt are thorny. Given the high amount of political uncertainty we see little reasons for sterling to strengthen significantly even as Johnson’s lead over Hunt decreased. We expect EUR/GBP to hold rather strong.
EUR/USD breaking north of 1.1350, improving the ST technical picture. Next resistance in the 1.1450 area to reach after Fed’s Powell?
