- Rates: Core bonds hold firm in bullish risk environment
Positive vibes around US-Sino trade talks lifted the S&P 500 and Nasdaq to fresh all-time highs. Core bonds remained resilient, ending an uneventful trading session broadly unchanged. US consumer confidence is today’s highlight, but we expect more sentiment-driven, technical trading today. - Currencies: EUR/USD nears 1.10 level as EMU data stay (a little) unconvincing
Yesterday, EUR/USD stayed in the defensive as the German Ifo wasn’t strong enough to inspire euro bulls. We see the EUR/USD move as euro softness rather than outright USD strength. Today, the focus turns to US data. We assume a big positive surprise is needed to trigger a real USD rally. Sterling easily keeps recent gains. Key EUR/GBP supports is coming closer.
The Sunrise Headlines
- US equities reached record highs amid continued trade truce optimism and a flurry of M&A activity. The Nasdaq (+1.32%) outperformed. Most Asian markets are following track with Australia outperforming (+0.85%).
- US and Chinese officials held a constructive phone call this morning, according to China’s Commerce Ministry. Both parties “reached consensus on properly resolving relevant issues” and agreed to remain in close contact.
- The US economy’s glass is “more than half full” according to Fed’s Powell. The chairman struck an upbeat tone and pledged that current monetary policy stance is well positioned to prolong the record US economic expansion.
- China’s foreign minister Zheng Zeguang requested US ambassador Terry Branstad yesterday to protest against the US’ interference in Hong Kong. The minister pledged that HK affairs are Chinese internal matters.
- US House of Representatives speaker Nancy Pelosi said yesterday that a draft of the US-Mexico-Canada trade deal that president Trump has been pushing for to get through Congress, was “within range” but a final review was needed.
- A draft budget shows that Flemish debt/income is seen increasing from 46.6% in 2019 to 50.7% in 2020. Minister for budget Matthias Diependaele nevertheless stands positive as Flanders remains below the 65% debt standard.
- In today’s economic calendar the US will publish a slew of data amongst which consumer confidence data. ECB speeches are due and the Fed’s Brainard will discuss the policy framework review. The US and Italy tap the bond market.
Currencies: EUR/USD Nears 1.10 Level As EMU Data Stay (A Little) Unconvincing
EUR/USD returns close to 1.10 barrier
Yesterday, FX trading was quite similar to what happened of late. USD/JPY profited slightly from the risk-on context as markets still see signs of goodwill from the US and China to strike a first phase trade deal. USD/JPY closed the day just below 109. EUR/USD traded in line with Friday. Later, EUR/USD drifted back lower in the 1.00 big figure as markets were disappointed on a lacklustre PMI print. Yesterday, German IFO confidence also showed signs of bottoming. However, the release was almost exactly as expected but failed to convince euro bulls. EUR/USD dropped close to 1.10 and closed at 1.1014.
This morning, Asian equites remain positively oriented, but the gains are less pronounced compared to WS yesterday (new records S&P and Nasdaq). In a speech overnight, Fed’s Powell kept the line that current policy stance is appropriate. In a positive twist, he saw that the glass for the economy as much more than half full. Still his comments had little impact on US yields or on the dollar. USD/JPY still struggles to overcome the 109 barrier. EUR/USD hovers near 1.1015. Aussie dollar traders keep a close eye on a speech of RBA’s Lowe later this morning.
Today, the US eco calendar is well filled with inventories, trade balance, housing data and Conference board’s consumer confidence as several data are published earlier due to Thanksgiving (Thursday). Of late, US eco data had only limited impact on USD trading. Consumer confidence and, to a lesser extent, the trade balance might have some impact on the dollar. We still assume that a big upward surprise is needed for overall USD gains (DXY) as the bar for a Fed rate hike is very high.
Last week, a minor EUR/USD rebound was blocked near 1.11, leaving the pair in a neutral, slightly unconvincing trading pattern. The price action on Friday and yesterday, suggests underlying euro softness, rather than USD strength. A return below 1.0989 would deteriorate the ST picture. A rebound above 1.11 would be constructive in a ST perspective.
Yesterday, sentiment on sterling improved further after a moment of weakness after last week’s poor UK PMI’s. The Conservatives party is still expected to secure a majority in Parliament, even as polls shows modest swings in voter intentions. CBI retail data also printed stronger than expected. EUR/GBP closed at 0.8539. Today, the UK calendar is thin. We expect sterling to stay strong. EUR/GBP 0.8472 is the next key support
EUR/USD: EMU data fail to convince euro bulls
