- Rates: Core bonds gain some momentum; waiting on ECB and PMI’s
The Chinese virus outbreak caused some risk aversion yesterday which could last until the start of Chinese NY holidays. Today’s empty eco calendar suggests sentiment-driven trading within technical ranges ahead of tomorrow’s ECB meeting and Friday’s global PMI’s. Italian bonds underperform with 5SM leader Di Maio rumoured to resign. - Currencies: EUR/USD still captured in sell-on-upticks pattern
EUR/USD spiked temporarily higher on a strong ZEW confidence yesterday, but gains could not be sustained. A rebound in US yields as uncertainty on the corona virus eases, is supporting the dollar both against the yen and the euro. The EUR/USD 1.1066 support remains under threat. Sterling remains well bid after a solid UK labour market report
The Sunrise Headlines
- US stock markets lost ground and ended up to 0.52% (S&P 500) lower as the Chinese coronavirus found its way to US grounds. Asian markets are mostly in the green following China’s response to the virus. South Korea outperforms.
- The Chinese government will start nationwide screening to tackle the growing outbreak of the coronavirus as the death toll rises and the virus appears to be spreading around to other to parts of China and abroad.
- Russian president Putin approved a new government describing it as a break with the past. The approval comes a week after Putin revealed a thorough shift of the country’s political system which led to the resignation of the government.
- Italy’s anti-establishment Five Star Movement is on the brink of collapse ahead of this weekend’s regional election as party leader Luigi Di Maio is about to quit his role as party chief, according to reports from several Italian media outlets.
- Canadian PM Trudeau urged legislators to speed up the process of ratifying the new USMCA deal. The main opposition party is throwing a spanner in the works and dragging out the process, indicating it wants to scrutinize the deal.
- South Korea’s economy expanded by 1.2% (Q/Q) in Q4/2019, up from 0.4% in Q3 and beating the 0.7% forecast. The government’s fiscal boost and the central bank’s stimulus continue to support the country’s economic growth recovery.
- Today’s economic calendar contains Canadian CPI figures, shortly followed by the BoC’s rate decision which is expected to stand pat. US home sales and house price data are due.
Currencies: EUR/USD Still Captured In Sell-On-Upticks Pattern
EUR/USD still captured in sell-on-upticks pattern
Yesterday, the odds in FX trading tilted in favour of the euro, at least temporarily. EUR/USD hovered just below 1.11 as uncertainty on the corona virus triggered a risk-off repositioning in Asia. Later, EUR/USD was propelled by an unexpected sharp rise of ZEW investor confidence. In line with recent price action, the decline in core (US) yields due to the risk-off also weighed on the dollar. USD/JPY dropped below 110 (close at 109.87). EUR/USD spiked to the 1.1115 area, but the gain evaporated soon. The pair even closed the session in the red (1.1082 vs 1.1095). For now, the pair is still captured in a sell-on-upticks pattern. This morning, Asian markets gradually recoup part of yesterday’s virus-induced sell-off. Regarding the data, South Korea Q4 growth surprised on the upside (1.2% Q/Q), a pointer regional and even global growth might be bottoming. Still, the regional dynamics are mainly driven by the headlines on the corona virus. The yuan opened weak but reversed intraday losses (USD/CNY near 6.9050). The dollar profits from a guarded rebound in US yields. USD/JPY is trading just north of 110. EUR/USD struggles not to fall below the 1.1080 support area.
Today, the eco calendar is thin both in the US and Europe. So, global sentiment/FX trading will mainly be driven by headlines on the (wider) impact of the corona virus. Investors also keep an eye on corporate results as the earnings season is in full swing. Yesterday, EUR/USD profited temporarily from a strong ZEW, but there are few euro-specific drivers. If anything, uncertainty on Italian politics might be euro negative. Global factors also don’t help EUR/USD. A rebound in core yields tends to the support the dollar, both against the yen and the euro. The technical picture remains fragile too. EUR/USD struggles not to fall below the 1.1085/66 support. A break would deteriorate the short-term picture. A rebound above 1.1180 would call off the ST downside alert, but that looks difficult for now.
Over the previous days any upticks in EUR/GBP were met with decent GBP buying interest despite market speculation on a BoE rate cut at the of this month. Yesterday, sterling was further propelled by a solid UK labour market report. EUR/GBP returned below the 0.85 handle. Of late, sterling didn’t suffer much from the debate on a potential rate cut. For now, ST sterling momentum remains constructive. The UK preliminary PMIs (tomorrow) might be key for the BoE and for sterling
EUR/USD struggles not to fall below 1.1066 support
