Rates: Core bonds hold advantage in subdued trading
Investors remain side-lined or keep a cautious approach ahead of this week’s key events. Core bonds advance slowly in low-volume trading conditions. Today’s eco calendar contains German ZEW investor sentiment, US small business optimism and a 10-yr Note auction, but yesterday’s trading conditions might persist.

Currencies: Dollar paralyzed in tight ranges due to upcoming event risk
UR/USD and USD/JPY found a new post-payrolls equilibrium. Several key event risks later this week prevent investors from engaging in directional positions. A good ZEW confidence might be a minor supportive for the euro. The sterling short-squeeze slowed yesterday, but sterling will probably stay strong if there is no high profile ‘new news’ on the election.

The Sunrise Headlines

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  • US equities ticked lower up to -0.4% (Nasdaq) as investors grew cautious ahead of a looming China tariff deadline and key central bank meetings later this week. Asian equities are drifting lower with India underperforming (-0.66%).
  • US-China trade hope got a new boost after US Agriculture Secretary Sonny Perdue stated Washington is unlikely to proceed with its threat to levy additional tariffs on $160bln of Chinese goods from December 15.
  • US Congress is taking aim at China in a new bill. The bill would bar the use of federal funds to buy Chinese buses and railcars, WSJ reported. The act comes at a critical time that Trump is seeking an interim trade deal with Beijing.
  • China’s consumer inflation climbed to a 7-year high of 4.5% (Y/Y) in November. Surging pork prices (+110% Y/Y) pushed the CPI up while producer prices continued their slide (-1.4%), complicating the PBOC’s effort to boost growth.
  • Senior US and Canadian officials are set to take off to Mexico today to put the final touches to the US-Mexico-Canada Agreement (USMCA). The pact could pave the way for a pass through US Congress before year-end.
  • Ukraine-Russia peace talks revived as the countries’ leaders Putin and Zelenskiy held a constructive dialogue at a summit in Paris. The presidents conceded to an exchange of prisoners and the withdrawal of some troops.
  • In today’s economic calendar markets will scrutinize the German ZEW survey for signs of improved confidence. Industrial production data are due across the EMU. The US and Germany tap the bond market

Currencies: Dollar Paralyzed In Tight Ranges Due To Upcoming Event Risk

Dollar paralyzed by upcoming event risk

Global trading was locked in a directionless holding pattern yesterday as investors awaited upcoming events, including the Fed and ECB meetings, the UK election and Sunday’s US deadline to impose new tarrifs on China. This indecisive pattern was also visible in the dollar. EUR/USD regained a few ticks after Friday’s setback, but the intraday pattern was unconvincing. The pair ended little changed (1.1064 from 1.1060 on Friday). The yen initially gained a few ticks on better news from Japan, but the trade lacked momentum as well. In the end changes versus Friday’s close were negligible (108.56 from 108.58).

There is little news for investors to change their view on the pending issues this morning. Major Asian equity indices are mostly trading little changed to marginally lower. The yuan hovers near USD/CNY 7.0375/7.04. China CPI printed a higher than expected 4.5%, but the move is seen a temporary (pork prices) with no lasting impact on PBOC policy. The Aussie dollar can’t hold on to an initial uptick after mixed Australian data (AUD/USD 0.6825/30 area). USD/JPY is going nowhere (108.60).EUR/USD hovers near 1.1065.

Today’s calendar is moderately interesting. German ZEW sentiment is expected to rebound as financial conditions improved. If so, it might be mildly euro supportive, but it won’t be a gamechanger. This applies also to the US NFIB small business confidence (expected at 103.0 from 102.4).The shadow of important events ahead, will likely cause order-driven trading. EUR/USD eased off the 1.11 resistance area last week after solid US payrolls rebound, but the post-payrolls USD rebound was modest and unconvincing. The EUR/USD 1.0989/81 area looks quite solid support. The jury is still out, but we slightly prefer to sell the USD on upticks, against the euro and the yen.

The sterling short squeeze pushed EUR/GBP temporary below 0.84 yesterday. Sterling buying eased later in the session. The Focus of the campaign temporary shifting the National Health Services maybe was a slightly negative for the Conservative Party and for sterling but probably won’t change fortunes in a profound way. UK production data won’t have a big impact on trading today. Expect sterling to hold strong unless election sentiment changes profoundly.

EUR/USD holding well within 1.10-1.11 range. Upcoming event risk to decide on next directional break

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