• Rates: Risk sentiment remains key (volatile) driver for trading
    US investors return from a long weekend and will awake to more confusing signals on trade and on Brexit. Those hard-topredict volatile headlines determine price action on bond markets via risk sentiment. The start of Q3 earning season is a wildcard today.
  • Currencies: EUR/USD holding north of 1.10 but with no clear directional bias
    Yesterday’s (FX) markets failed to draw firm conclusions from the US-China trade talks. EUR/USD and USD/JPY ended the day little changed. Today, there are few data to guide trading. Brexit, the global market reaction to the first corporate earnings and trade will inspire intraday gyrations in the major cross rates. The dollar might lose some further interest rate support

The Sunrise Headlines

  • WS closed in red (-0.14%) but was little changed as the trade-induced relief rally has ebbed with growing uncertainties over the path of US-China talks. Asian markets are trading mixed with Japan jumping (+1.84%) after a long weekend.
  • The EU is considering a new emergency summit to get a Brexit deal. The Telegraph reported that the EU and the UK yielded a possible solution to the Irish border issue.
  • The US imposed sanctions on Turkish officials, halted trade negotiations and raised steel tariffs on Turkey, while threatening more-powerful penalties, urging an immediate cease-fire in Syria.
  • China’s consumer price growth hits a 6-year high (3%), mainly driven by a 69.3% jump in pork prices whereas factory prices fell (-1.2%) for a third month as the China’s manufacturing sector remains under pressure.
  • BOJ’s governor Kuroda said on Tuesday the central bank would not hesitate to add stimulus if risks to the economy grow and threaten momentum towards its 2% inflation target.
  • The New York Fed Empire business index which was released early, rose to 4.0 in October. New orders remained unchanged while inventory (-0.6 vs 8.5), prices paid (23.1 vs 29.4) and number of employees (7.6 vs 9.7) fell.
  • In today’s economic calendar markets are looking ahead to a slew of US bank earnings. The IMF updates its world economic outlook as it holds its annual meeting with the World Bank later in the day.

Currencies: EUR/USD Holding North Of 1.10 But With No Clear Directional Bias

EUR/USD holding north of 1.10, but no further gain

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Trading in the major (USD) cross rates took a slow start yesterday as Japanese and US markets were (partially) closed. European investors pondered the meaning of the (partial) US-China trade deal. Apparently, there is still work to do before a deal can be signed next month. This ‘minimalistic’ deal also shouldn’t change to reaction function of the Fed, leaving room for more easing. So, in theory it could be seen as slightly USD negative. USD/JPY dropped to the low 108 area intraday, but still closed marginally higher at 108.40. EUR/USD also showed no clear directional trend and finished at 1.1027.

Overnight, Asian equities are trading mixed. China underperforms. China headline CPI printed a strong 3.0%, but underlying inflation remains low. There is little high profile eco news. The yuan stabilizes (USD/CNY 7.07). USD/JPY hovers in the 108.30-40 area. EUR/USD is trading little changed near 1.1030. Today, the eco calendar is thin. ZEW investor confidence is expected to decline further. The case for a bottoming is maybe overthrown by equity volatility early this month. A positive surprise might be slightly euro supportive, but the ZEW will probably have limited impact. First US earnings may affect global sentiment. Cautious guidance might be USD/JPY negative, but looks neutral for EUR/USD. More technical trading ahead of tomorrow’s US retail sales might be on the table.

Last week’s risk rebound helped EUR/USD to regain 1.10, but the break didn’t trigger meaningful follow-through gains. An easing in the trade tensions might provide some comfort for the export-reliant EMU economy, but growth prospects remain mediocre. We look out whether EUR/USD can hold north of the 1.10 area. If so, it could signal a more neutral ST bias. However, we’re not convinced this will be the start of a protracted EUR/USD up-leg. 1.1110 is the next reference on the charts.

Alternating headlines on the possibility to reach a Brexit deal this week caused some sharp intraday swings in sterling (EUR/GBP) yesterday. In the end sterling finished the day rather strong. at EUR/GBP 0.8746. The Queens speech was seen as preparing the UK for an election soon. Today’s labour data are important input for the November BoE meeting. Even so, Brexit will continue to dominate GBP trading. EU leaders suggest that a deal won’t be possible before the EU summit. A delay is likely. We see that as rather neutral for sterling short-term

EUR/USD: tries to sustain above key trendline.

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