Rates: US president Trumps signs the Hong Kong bill
Trump signing the Hong Kong bill prompted an immediate backlash from both the Hong Kong and Chinese government. Asian markets trade in red, core bonds trade higher. The US is closed for Thanksgiving today so focus turns to the EU. European data (EC confidence, German inflation) might weigh on the Bund.
Currencies: EUR/GBP nears key support as poll suggests solid Conservative majority
Yesterday, solid US eco data supported the dollar and pushed EUR/USD toward the 1.0989 neckline, but a real test/break didn’t occur. USD/JPY touched a new ST top. Today, the focus turns the EMU confidence data and German CPI. Will the euro profit from better EMU data? Sterling jumped higher after a poll suggests a solid majority for the Conservative party.
The Sunrise Headlines
- US equities capped fresh records on the back of solid US eco data and upbeat sentiment. The Nasdaq (+0.66%) outperformed. Asian markets are mostly colouring red as trade optimism faded. South Korea underperforms (-1%).
- US president Trump backed Hong Kong protestors by ratifying the Hong Kong Human Rights and Democracy Act. The move was strongly objected by China that threatens retaliation and risks disrupting ongoing trade negotiations.
- The YouGov poll, a widely anticipated and predictive survey, foresees UK’s Boris Johnson and his Tories to be on course for a comfortable 68-seat majority at the 12 December general election.
- Japan’s retail sales plunged 14.4% (M/M) in October, the steepest drop since 2015. A sales tax hike and a typhoon prompted consumers to curb spending. The weak number casts a shadow over the strength of Japan’s domestic demand.
- Turkey’s central bank is set to take steps boost credit (growth) in specific sectors of Turkey’s recession-hit economy, kicking off with adjusting reserve requirements to squeeze more credit from lenders, Reuters reported.
- ECB’s Villeroy announced today that the central bank is reviewing its policy with the major priority being clarifying its inflation target. The ECB aims to shed light on its various time horizons as well as its commitment to symmetry.
- Today’s economic calendar is quite thin. The euro area economic confidence indicator for October is due. Germany and Spain publish preliminary inflation numbers and Italy issues bonds. US markets are closed for Thanksgiving
Currencies: EUR/GBP Nears Key Support As Poll Suggests Solid Conservative Majority
EUR/GBP nearing key support
Yesterday, the dollar extended a gradual rise for most of the day. The move accelerated as the early morning US data (GDP, claims and durable orders) printed strong. Interest rate differentials widened in favour of the US dollar. EUR/USD came close to the 1.0989 neckline, but a break didn’t occur. The US core PCE deflator printing softer than expected, eased the USD bid. A UK election poll showing a comfortable lead for the Conservative party gave EUR/USD downside protection too. EUR/USD closed at 1.0999. Mostly solid US data and further equity gains also propelled USD/JPY to a new ST top, closing the day at 109.54.
Risk sentiment turned less upbeat overnight. US president Trump signed a bill supporting the protesters in Hong Kong. This might complicate the US-China trade talks. Even so, the correction of Asian equities remains modest. The yen rebounded (USD/JPY 109.45 area). Poor Japanese retail sales were largely ignored. The yuan is little changed (USD/CNY 7.0285). EUR/USD hovers just north of 1.10. The Aussie dollar also stays under pressure (0.6765 area). Today, US markets are closed for Thanksgiving. (European) equities will probably take a soft start after President Trump signed the Hong Kong bill overnight. This might be a tentative USD negative. Regarding the data, the EC confidence data and German CPI are worth looking at. In both cases, we look out for signs of bottoming after recent poor data. The PMI’s and the Ifo recently showed that a ‘real’ upward surprise is probably needed for the euro to profit from EMU eco data.
Last week, a minor EUR/USD rebound was blocked near 1.11, leaving the pair in an unconvincing trading pattern. Yesterday, EUR/USD came close to the 1.0989 support, but a break didn’t occur. A return below 1.0989 would deteriorate the ST picture. The 1.0879 correction low is the next reference on the technical charts. A rebound back above 1.11 would call off the ST downward alert. Ongoing low volatility is in theory slightly USD supportive (carry). Sterling resumed its uptrend after a pause earlier this week yesterday. The move accelerated after a YouGov poll indicated that the Conservative party could succeed a solid majority in the Dec 12 election. EUR/GBP drifted to the low 0.85 area. The pair is nearing the 0.8490/72 key support area. A break would (materially) improve the technical picture for the UK currency
EUR/USD tests 1.0989 support, but break avoided (for now).
