- Rates: Start of Q1 earning season key for risk sentiment and trading
US investors had a quiet return from the Easter break yesterday. The Fed reducing the frequency of some of its crisis measures triggered a small positive risk reaction towards the end of trading. Today’s eco calendar centers around Q1 earning releases of some US banks. Is sufficient bad news discounted? - Currencies: EUR/USD takes out 1.09
EUR/USD ended a choppy yet low-volume session (Europe closed) back lower as the Fed announced some scaling down of its dollar provision measures. EUR/USD 1.09 survived however. Today’s start of the Q1 earnings season comes into focus but might conflict with the silver lining of the coronavirus news flow. EUR/USD 1.096 is a next important reference
The Sunrise Headlines
- US equities lost ground as investors brace for a coronavirus-infected earnings season to kick off. The Dow Jones underperformed (-1.39%). Asian markets edge higher with Japan leading gains (3.28%). Indian markets are closed.
- China’s trade showed a smaller-than-expected hit, with both exports (-6.6% vs. consensus at -13.9%) and imports (-0.9% vs. consensus at -9.8%) contracting less than expected, sparkling hopes for a modest rebound.
- Russia and Saudi Arabia buried the hatchet as OPEC+ agreed to slash global crude output by 9.7 mln barrels per day in May and June with Saudi Arabia vowing to cut output further if needed when the alliance meets again in June.
- US president Trump claimed having “total” authority to order states to lift coronavirus restrictions and relaunch the economy after several states agreed to join forces to gradually reopen businesses and ease social-distancing rules.
- The EU is pushing national governments for a coordinated and gradual exit strategy for lifting lockdown measures as the bloc seeks to avoid a chaotic repeat of unilateral steps taken at the start of the health crisis, FT reported.
- The Fed announced it is scaling back the frequency of some repo operations for the upcoming monthly period as money market conditions appear to be stabilizing and the recent take-up of the repo’s falling sharply.
- Today’s economic calendar is little inspiring. The Fed’s Bullard is scheduled to hold a Covid-19 briefing while investors brace for earnings season to take off that will reveal the severe blow from the pandemic to the corporate world
Currencies: EUR/USD Takes Out 1.09
The Fed’s early Easter gift last Thursday spurred investor optimism going into the long weekend. EUR/USD soared towards the low 1.09 area in the wake of the Fed’s decisions but came under slight selling pressure yesterday (Europe still closed for Easter Monday though). The €540bn European rescue bill agreed upon end of last (trading) week fails to convince eurobulls while the Fed scales down some of the massive dollar provision measures starting May 4 as it sees signals of further reduced dollar stress. EUR/USD tested but kept the 1.09 however. Nevertheless, USD/JPY slipped towards 107.50 while the trade-weighted USD found a new equilibrium below 100.
Overnight sentiment is constructive with Asian markets trading well in the green. Chinese trade data were not as worse as anticipated. The coronavirus news flow is moderately positive. Many countries extend the lockdown measures but the accompanied guidance on a gradual reopen by some of them (o.a. France) provides light at the end of the tunnel. Commodities rally (oil, copper), boosting the likes of the Aussie dollar (AUD/USD takes out 0.64) and the Norwegian krona (EUR/NOK below 11.2). EUR/USD (1.094) gains.
Rolling Covid-19 headlines will continue to dominate overall sentiment today. However, we also pay special attention to the start of the earnings season. Shocker results and the lack of a clear vision going forward might conflict with the cautious silver lining markets are starting to see in virus data. We do think the latter will prevail over the heavily distorted earnings. DXY’s decline below 100 and EUR/USD’s capture of 1.09 are important technical signals. An extension beyond 1.0964 (38.2% fibo retracement from March high to low) during today’s risk-on session would further improve matters for EUR/USD.
EUR/GBP had a poor session yesterday, leaving its narrow trading range in the high 0.875 area for a trip towards but above 0.87. Volumes were low but the break below 0.874 is technically relevant nonetheless. The pound had a strong few weeks but there’s no obvious reason to bet against ongoing sterling strength yet. EUR/GBP might enter a new sideways trading 0.86/88 pattern
EUR/USD retakes the 1.09 level, improving the technical picture as
