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Currencies: Will Payrolls Break Recent Stalemate In USD Trading?

  • Rates: Payrolls to nudge the Fed towards a July rate cut?
    The German 10-yr yield tested the ECB’s -0.40% deposit rate during a subdued (US closed) trading session yesterday. Focus turns to the US today with the June payrolls due. If the expected downside risks materialize, we might witness further pressure on (core bond) yields, in particular on the longer end of the curve.
  • Currencies: Will payrolls break recent stalemate in USD trading?
    Major US cross rates held tight range ahead of today’s payrolls yesterday. The payrolls are expected to rebound, but the figure might not be good enough to ease market expectations on aggressive Fed cut. In theory, this scenario might be EUR/USD supportive, but the euro isn’t in good shape either. So, the 1.11/1.14 trading range might remain intact.

The Sunrise Headlines

  • US stock markets were closed in observance of Independency Day on Thursday. Asian-Pacific trading is muted and shows little direction ahead of US payrolls due later today. Australia(+0.7%) outperforms.
  • German factory orders disappointed strongly this morning, printing at -2.2% MoM (-0.2% expected) and -8.6% YoY (-6.2%). The automotive (-3.9% MoM) and chemical sector (-3.6% MoM) were the major culprits.
  • A latest YouGov voting poll showed UK’s Labour would fall to the 4th place for the first time ever with just 18% of the votes. The Conservatives (24%) would again take lead over the Brexit Party (23%) and the Libdems (20%).
  • India’s finance ministry projects growth to rebound to 7% in the current fiscal year while sticking to the fiscal path. Growth reached a 5-yr low in the previous fiscal year as weak consumption and rising US/Sino trade tensions weighed.
  • The Australian regulator has eased mortgage lending rules on Friday in an attempt to boost the economy. The move comes after the central bank cut rates to 1% and the government approved a $110 bn tax cut.
  • Italian Finance minister Tria in a hearing said he expects growth to remain close to zero this year. He declined to give an indication about the deficit target for 2020, saying it will depend on growth in the rest of the year.
  • In today’s economic calendar it’s all about the June payrolls in the US. We’ll also watch for the Canadian job report to be released. ECB’s vice-president de Guindos is scheduled to speak

Currencies: Will payrolls break recent stalemate in USD trading?

Payrolls to break USD stalemate?

USD trading developed in tight ranges yesterday. The US markets were closed. Disappointing May EMU retail sales and soft comments of ECB’s Rehn kept European yields under downward pressure, but the impact on the euro was limited. EUR/USD closed at 1.1185 (from 1.1278). USD/JPY (107.82) ended little changed.

Asian equities are trading mixed holding close to yesterday’s levels. Markets await guidance from the US, with the US payrolls a potential decisive factor for the next move on US (and global) markets. EUR/USD (1.1280 area) and USD/JPY (107.85 area) are also little changed.

This morning, German May factory orders (-2.2% MoM) confirmed the poor performance of this part of the economy. Still the focus for global (FX) trading is on the US June payrolls and its consequences for Fed policy. US job growth is expected to rebound from a poor 75k to 160k. This level is well below recent averages So, even an in-line outcome can be seen as confirming the need for pre-emptive Fed action. Average hourly earnings are expected at 0.3% MoM (from 0.2% MoM) and 3.2% YoY. The unemployment rate is expected stable at 3.6%. We assume that a real positive surprise is needed to ease rate cut speculation and to change to trend of declining yields. This scenario in theory should also cap USD gains, even as the dollar performed rather well this week. We assume USD gains to be modest, except in case of a big positive surprise. Earlier this week, EUR/USD returned to the middle of the 1.11/1.14 range, making the EUR/USD picture again neutral. We look out whether the today’s US payrolls will provide any clear directional guidance, but trading might be confined to recent ranges. First EUR/USD support comes in at 1.1260 ahead of 1.1181 (correction low). A return above 1.1350 would suggest that a new upside test is possible.

EUR/GBP was still locked in the upper half of the 0.89 figure yesterday as there was no political or eco news important enough to adapt sterling positions in a profound way. Today, UK eco data (including house prices) are probably second tier for sterling trading and we also don’t expect breaking news for the leaderships battle in the Conservative party. So, more erratic EUR/GBP trading near recent levels is likely

EUR/USD: holding in the middle of the 1.11/1.14 range ahead of US payrolls

KBC Bank
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