• Rates: Risk rally running out of steam
    This week’s risk rally shows signs of running out of steam suggesting some profit taking going into the weekend. This could serve a gentle bid for core bonds. US payrolls will probably need to be very strong to leave a permanent trace on trading. German politics are a wildcard this weekend with a scheduled crisis meeting between the ruling CDU and SPD.
  • Currencies: Payrolls to trigger sustained break below 1.0980 support
    The risk rally and the rise in core yields are slowing, but the dollar continues to profit from this week’s strong US eco data. Expectations for the payrolls probably have been raised after the strong APD. Even so, the report probably has to be really weak to change EUR/USD fortunes for the better

The Sunrise Headlines

  • WS gained for a fourth (up to 0.67%, Nasdaq) straight session and struck record highs as planned Chinese tariff cuts on US goods buoyed risk sentiment. Asian markets are losing steam (up to -1.20%) putting a halt to this week’s risk rally.
  • OPEC+ expects Russia to respond in the coming days rather than weeks to its proposed provisional cut in oil output of 600,000 bpd, aiming to mitigate the impact of any weakening in global demand in response to the coronavirus.
  • Pete Buttigieg (26.2%) beat Bernie Sanders (26.1%) with a razor-thin lead in the Iowa caucuses with all precincts counted. Numbers are expressed in State Delegate Equivalents. Warren comes in third (18%) and Biden fourth (15.8%).
  • US president Trump and his Chinese counterpart Jinping reaffirmed their pledge to implementing the phase one trade agreement signed last month. Trump praised Beijing’s strength and resilience in its fight to contain the coronavirus.
  • The RBA slashed its near-term economic forecasts as it expects a hit to growth from the bushfires at home and the coronavirus outbreak in China. The central bank now predicts growth to reach 1.9% in H1, down from a previous 2.6%.
  • The Fed’s Quarles stated the central bank is contemplating different changes to its banking supervision framework to enhance money market liquidity through flexible liquidity requirements while not loosening banks’ compulsory buffers.
  • Today’s economic calendar is packed, containing US/Canadian labour market data (payrolls, earnings,…). The Fed will release its semi-annual monetary policy report to Congress. Industrial production/trade data are due across Europe.

Currencies: Payrolls To Trigger Sustained Break Below 1.0980 Support

Will payrolls hammer EUR/USD below 1.0980?

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Yesterday, the dollar held on to recent gains against other majors even as the risk-rebound slowed. The rise in core yields halted but didn’t hurt the dollar. This week’s strong data kept the US dollar well supported going into today’s payrolls. The trade-weighted dollar (98.50 area) and USD/JPY (110 area) were closing in on technical resistance. The euro again underperformed. EUR/USD slipped below the 1.0981 support as mediocre eco data and lingering political issues continue to weigh.

Overnight, the relief-rally also halted in Asia as several equity indices retraced most/all of the initial corona-related loss. The yuan (USD/CNY 6.98 area) is losing a few ticks. RBA chief Lowe indicated that currently the risk of further rate cuts slightly outweighs benefits. The RBA wait-and-see bias doesn’t help the AUD much. AUD/USD is drifting lower in the 0.67 figure (0.6725 area). USD/JPY hovers just below 110. EUR/USD (1.1080) still struggles not to fall below the key 1.0980 area.

Today, German and French industrial production probably won’t save the euro. Expectations for the US payrolls are probably lifted after the strong ADP report. Meeting expectations (165 000) might be a disappointment for USD bulls. On the other hand, an upward surprise in wage growth still might support the dollar. The easing of the global risk rally limits additional interest rate support for the USD, but we don’t see it changing fortunes for EUR/USD. The payrolls probably will have to be really weak to block the EUR/USD slide.

Last week, a first test of this key support was rejected, but the USD soon regained the upper hand. A sustained move below 1.0981 would pave the way for a full retracement to 1.0879 (2019 low). A return above 1.1120 would call off the ST alert, but we don’t see a trigger for that.

Sterling remained under slight pressure against the dollar and the euro yesterday. However, EUR/GBP remained within established sideways range. Uncertainty on the UK-EU trade negotiations blocked recent positive GBP-momentum. There are again no UK eco data today. We keep the view that sterling can hold rather strong on better eco news, especially against a weak euro.

EUR/USD breaking below the 1.0980 support

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