• Rates: Yields recover amid trade hopes
    Core bond yields recovered moderately yesterday and early this morning as cautious trade optimism reigns. Today’s eco calendar is probably only of intraday significance. The trade theme dominates with the G20 summit and the Trump-Xi meeting looming. We expect some further consolidation in (core) bond markets in a currently constructive environment.
  • Currencies: USD trading mixed ahead of G20 meeting
    The dollar tried a cautious comeback yesterday as speculation on an aggressive Fed rate eased. Hope on a trade truce also supported US yields. USD/JPY outperforms. The picture for other USD cross rates including EUR/USD was more mixed. Today, eco data will second tier for USD trading. Investors positioning ahead of the G20 will dominate

The Sunrise Headlines

  • US equities opened higher on cautious trade optimism but eventually ended up mixed with only the Nasdaq ending in green (+0.32%). Asian markets rally as reports suggested a US/Sino trade truce. China outperforms.
  • The Czech central bank left the policy rate unchanged at 2.0%. Governor Rusnok indicated that a rate pause could be relatively long and that he can’t rule out a move with Czech rates in any direction.
  • US President Trump urged India to cancel the duties on American products it imposed this month, saying they are “unacceptable”. India slapped with higher tariffs as a retaliation against the US removing some key trade privileges.
  • Tory leader finalist Boris Johnson scaled down rhetoric on a no-deal Brexit, saying chances are “a million to one against”. He also sides with his competitor Hunt in dismissing an election before the October 31 deadline.
  • Iran will probably breach the 2015 nuclear deal today as the cap on uranium stock is likely to be exceeded. The move aims to put pressure on the EU to bring peace between the US and Iran after the former re-imposed Iranian sanctions.
  • The Czech minority government survived a vote of no confidence yesterday. The opposition called for such a vote as PM Babis is facing investigations into alleged EU subsidy fraud which triggered a series of public protests recently.
  • In today’s economic calendar we focus on German inflation and the EC economic confidence in the euro zone. US data (third GDP reading, jobless claims) is of secondary importance. The US taps the bond market.

Currencies: USD Trading Mixed Ahead Of G20 Meeting

USD trading mixed ahead of G20 meeting

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An EUR/USD test above 1.14 was rejected on Tuesday as Fed governors Powell and Bullard downplayed the chance of a 50 bp rate cut soon. Calming of Fed rate cut speculation and rising hope on a trade truce at Saturday’s meeting between presidents Trump and Xi (slightly) lifted core/US yields. The impact on the dollar was mixed. EUR/USD hovered in the upper half of 1.13 to close little changed at 1.1369. USD/JPY outperformed to finish at 107.80 (from 107.20).

This morning, optimism on a trade truce is supporting Asian equities, even as president Trump is keeping the door open for additional tariffs if no progress will be made on Saturday. US yields are rebounding further and so does the dollar, with USD/JPY (108+) still taking the lead. EUR/USD is drifting back to the mid 1.13 area. The yuan is little changed (USD/CNY 6.88 area). Optimism on trade also (slightly) supports the Aussie (AUD/USD nearing 0.70) and the kiwi dollar (0.6685 area).

Today, the EC EMU confidence data and the German June CPI will be published. EC confidence is expected the decline marginally. German CPI is expected unchanged at 1.3%. Maybe there is a slight downside risk. US data (third revision GDP, jobless claims, pending home sales) will only be of intraday significance, at best. The market focus will remain on Saturday’s Trump- Xi meeting and on overall Osaka G20 meerting. A rebound in US yields, both due to an easing of Fed rate cut speculation and hope on a trade truce prevented further USD losses on Tuesday and yesterday. Even so, we remain cautious on the dollar ahead of the G20 meeting as we assume the US will raise the issue of what it considers a too strong dollar at the G20. The EUR/USD 1.13 should provide decent support. Topside resistance is coming in at 1.1412 and 1.1448.

EUR/GBP set a minor new ST top in the 0.8976 area yesterday, but a test of the 0.90 barrier didn’t occur. In a parliamentary hearing, the BoE maintained the scenario of limited rate hikes but acknowledged the divergent market pricing. Boris Johnson downplayed the chance of a no deal Brexit, but his comments didn’t help sterling much. There are no UK eco data today. More technical EUR/GBP trading near recent levels might be on the cards. We see no big case for a sustained sterling rebound. The EUR/GBP 0.90 barrier is within reach. EUR/GBP 0.9108 marks the early January peak

Dollar decline slows, at least temporarily, as markets await outcome of the G20 meeting.


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