• Rates: More supply-related underperformance of US Treasuries?
    A US stock market outperformance and the start of the US Treasury’s mid-month refinancing operation triggered underperformance of US Treasuries vs German Bunds. Risk sentiment is less vibrating this morning, but supply remains at play. European investors await the outcome of a Eurogroup teleconference on EMU fiscal aid programmes.
  • Currencies: dollar rally slows, for now.
    Yesterday and this morning, the recent rise of the (trade-weighted) dollar slowed. However, the US currency quite easily retains recent gains despite the outright risk-on yesterday. Global risk sentiment and the outcome of the meeting of the EU finance ministers will set the tone for EUR/USD trading. Will the EU crisis response help to put a floor for the euro?

The Sunrise Headlines

  • US equities soared, buoyed by tentative signs the number of NY coronavirus cases may be plateauing. The Dow Jones (+7.73%) outperformed. Asian markets are less bullish (+1%) with India outperforming in a catch-up move (+4.50%).
  • The Japanese government is reportedly raising an additional ¥16.81tn through debt-covering and construction bonds, expanding its ¥108tn stimulus package with a large chunk targeted at cash handouts for households and smaller firms.
  • The Fed established a new facility that will provide term financing to banks against loans issued under the Small Business Administration’s Paycheck Protection Program (PPP) to speed the flow of funds to small businesses.
  • The IMF mulls backing up the Fed’s campaign to keep dollars flowing around the world by launching a new program that offers short-term dollar loans to countries that lack sufficient Treasuries to participate in the Fed’s program.
  • House speaker Nancy Pelosi said Congress’s next stimulus bill to fight the coronacrisis will be at least another $1tn aimed at increasing direct payments to individuals, extending unemployment insurance and adding funds to the PPP.
  • The EU contemplates a further relaxation of state aid rules to tackle the coronacrisis, FT reported. The proposal would allow member states to help affected business though the injection of equity or hybrid capital instruments.
  • Today’s economic calendar eyes meagre with only US JOLTS grabbing the attention. EU finance ministers meet to review measures to combat the coronacrisis. Ireland, Slovenia, the UK and the US tap the bond market

Currencies: Dollar Rally Slows, For Now

Euro awaiting EU Fin Min answer to corona crisis

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Yesterday was some kind of a ‘classic risk-on session’ on global markets. (Some) investors reacted to tentative signs that the coronavirus could reach its peak in Europe (maybe in the US) in a not that distant future. The trade-weighted USD stabilized (close 100.68), but the risk-on didn’t cause a big USD selling yet. USD/JPY even profited from the risk-on. Interest rate differentials also moved in favour of the US dollar but it probably was only of second tier importance for USD positioning. EUR/USD tested the recent lows (1.0770/75 area) intraday, but closed little changed at 1.0793. Still, the euro performance euro was mediocre compared to other risk-sensitive currencies like the Aussie dollar.

This morning, most Asian equity indices are in positive territory, but gains are modest given the WS rebound yesterday. The Japanese government announced an extra budget of JPY 16.8T. The yen is gaining modest ground, probably also as US equity futures show a mixed picture. The yuan is trading slightly stronger this morning, even as the PBOC took several measures to ease monetary conditions of late (USD/CNY 7.0770 area). The RBA as expected left its policy unchanged (policy rate at 0.25%). The Aussie dollar remains well bid after the meeting as the tone of the statement/comments was balanced (AUD/USD 0.6150 area). EUR/USD also tries to rebound from the 1.08 area.

Today, the eco calendar stays thin. Global sentiment and headlines on the Meeting of the EU Finance Ministers will to set the tone for trading. We assume most of the EU response will come within the established framework (ESM etc.). Some additional measures/steps to be financed on an EU level could support sentiment and the euro. Still, the outcome as usual might be balanced and quite complicated. Last week, EUR/USD falling below 1.09 deteriorated the technical picture. The pair tested 1.0775/70 support, but no sustained break occurred. The March low comes in at 1.0636. We also keep an eye on the trade-weighted dollar. The US currency might remain well bid, but we see no compelling reason for a break beyond the top near 103. EUR/USD rebounding above the 1.0950 area would be a first indication that downside pressure is easing.

Yesterday, the sterling initially remained rather well bid. EUR/GBP even returned to/below the 0.88 area. However, the UK currency lost some ground on headlines that UK PM Johnson had been moved to intensive care. Some consolidation in the 0.8750/0.90 area might be on the cards.

EUR/USD: 1.0770/75 support area holds, for now.

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