- Rates: Key meetings in the US and the UK
Rumours and headlines around the two-day high level trade talks in Washington remain balanced at best. Investors nevertheless took a more optimist approach yesterday. The discussions will remain key for trading today through risk sentiment. The meeting between UK PM Johnson and UK PM Varadkar is a wildcard.
- Currencies: Will trade talks help EUR/USD to break the 1.10 barrier?
EUR/USD again stalled ahead of the 1.10 barrier yesterday. Today, the focus for global FX trading will be on the US/China trade talks. This morning’s gyrations might be a precursor for FX/global market volatility today and tomorrow. A positive outcome might trigger a ‘classic’ risk repositioning with USD/JPY, EUR/JPY and EUR/USD rebounding. Might …
The Sunrise Headlines
- WS recouped earlier losses amid raised trade hopes that the US and China would settle some economic disputes (Nasdaq outperformed, 1.02%). Asian markets are trading mixed ahead of trade talks, China outperforms (+1%).
- US considers rolling out a previously agreed currency pact with China as part of a partial deal that could see a tariff increase next week suspended, Bloomberg reported. The accord would be part of a first-phase agreement with Beijing.
- Minutes from the September FOMC meeting showed increased downside risks to growth due in part to trade concerns but some sought to signal the limits of the current easing cycle. Policy makers appear divided on the future policy path.
- US job openings declined in August to their lowest level since March 2018, offering another sign of labour market cooling. Companies have eased hiring amid a dimming economic outlook and struggle to attract qualified workers.
- PM Boris Johnson has been issued an ultimatum by the EU ahead of a meeting with Ireland’s prime minister Varadkar today in a last bid for a Brexit deal: accept that NI remains in the EU customs union or there will be no agreement.
- The Fed will announce today that it has decided against forcing US branches of foreign banks to hold a minimum level of liquid assets to protect them from a cash crunch, FT reported.
- In today’s economic calendar the start of US-China trade negotiations takes centre stage. The US publishes September CPI data. The ECB accounts of its September policy meeting are due today.
Currencies: Will Trade Talks Help EUR/USD To Break The 1.10 Barrier?
Will trade talks help EUR/USD north of 1.10?
EUR/USD trading was order-driven and technical in nature yesterday. Global investors saw the glass half full on the US China trade talks. Sentiment was constructive. EUR/USD came within reach of the 1.10 barrier, but there was again no trigger for a real test. USD/JPY kept an upward bias. The Fed minutes were not that soft. The FOMC considered a possible end to the mid-cycle adjustment. The USD reaction was limited. Markets apparently considered the situation changed after recent US data. EUR/USD finished at 1.0971. USD/JPY closed at 107.48. Overnight, (Asian equity) markets were haunted by conflicting/diffuse headlines on the Sino-US trade negotiations. An initial risk-off was reversed after press reports that both parties were coming closer on a currency clause in a first partial deal. Asian equities are trading mixed with China outperforming. The yuan rebounds (USD/CNY 7.1150). USD/JPY is holding a tentative upward bias (107.50). EUR/USD returned to the high 1.09 area (1.0985 currently).
Today, there are (second tier) data in Europe. In theory, the US CPI has more market moving potential (PPI was soft earlier this week). However, today and tomorrow, global market moves will be dominated by headlines from the trade negotiations in Washington. Positive news probably would lead to a ‘classic’ FX risk-on repositioning move with USD/JPY, EUR/JPY and EUR/USD moving higher. However, the noise this morning might be a precursor for market volatility today and tomorrow.
Last week, the dollar declined off recent tops after poor US ISM’s and a loss of interest rate support. Still, USD losses remain modest even as markets anticipate further Fed easing this and next year. For now, the poor EMU eco hamper any sustained euro gains. EUR/USD is trading off recent low (1.0879) but is holding below the trendline (today near 1.1010). More soft US data and/or more outspoken ‘engagement’ of the Fed is probably needed for sustained EUR/USD gains. A constructive outcome of the trade talks or on Brexit might be a euro positive, too.
Press headlines on (the absence of) progress in the Brexit negotiations triggered the ‘standard’ intraday swings in EUR/GBP. At the end of the day, EUR/GBP still closed in the high 0.89 area. UK trade and production data probably will have limited impact on sterling trading. The focus in the Brexit process today turns to meeting between UK PM Johnson and Irish PM Varadkar. We don’t anticipate a high-profile break-through, yet.
EUR/USD: US-China trade talks to trigger a break?