- Rates: Waiting for PMI’s
Risk sentiment will drive intraday action on other markets, awaiting tomorrow’s PMI’s. Rising COVID-19 numbers remain worrisome. The Belgian debt agency taps the bond market. Last week’s funding update showed a total OLO funding need of €46.5bn, of which €31.19bn is already completed. - Currencies: EUR/USD struggles not to fall below the 1.12 area
The dollar retained the benefit of the doubt on Friday as sentiment on risk remain fragile. This morning, markets show no clear directional trend. The EUR/USD 1.1160 support area is coming on the radar. Sterling remains in the defensive. EUR/GBP is testing the key 0.9050 resistance. A sustained break would further deteriorate the picture for the UK currency.
The Sunrise Headlines
- US stocks ended last week in the red as investors saw the reopening of stores can also be reversed. The DJI (-0.80%) underperformed. Asian markets lack guidance and trade mixed. Hong Kong and Thailand underperform.
- The ongoing climb in coronavirus cases in several US States is causing companies, including Apple, to close some of its stores again just one month after reopening. Cruise lines suspend trips out of US ports until September 15.
- Details of China’s national security law confirmed it allows the country to override Hong Kong’s legal system in certain cases. It will establish a new bureau in HK that “handles national security cases” of which it has the final say.
- UK Treasury is mulling a temporary VAT cut for some sectors, including tourism, as soon as July. The costly action would be followed by lower public spending in the autumn Budget though as public finances are getting stretched.
- RBA Governor Lowe doesn’t think the A$ is either overvalued or poses a problem and reflect a.o. a reasonable economic outlook. He did add he would like to see the AUD lower to boost employment and inflation.
- Italian PM Conte said he will likely seek a wider budget deficit as he’s drawing up a plan that will focus on infrastructure projects and a VAT cut. He seeks parliament’s approval for €10bn, in addition to the €75bn agreed earlier.
- Today’s economic calendar eyes rather meagre with housing data due in the UK and consumer confidence in the EMU. EU and China hold a conference call on their trade relationship. Belgium taps the bond market
Currencies: EUR/USD Struggles Not To Fall Below The 1.12 Area
EUR/USD struggling not to fall below 1.12 handle
Global sentiment on risk and the headlines from the summit on the EU recovery plan were the main drivers for EUR/USD trading on Friday. The EU summit more or less developed as expected. Leaders of major countries including Germany stressed the need for a joined EU response to the crisis, but there was no concrete progress to guarantee a deal already for the next EU summit in July. EUR/USD spiked temporarily to the mid 1.12 area early in the afternoon, but optimism was short-lived. The TW dollar closed at 97,62, near the week top. EUR/USD finished at 1.1178. USD/JPY again traded remarkably stable (close at 106.87.
This morning, the further rise in corona infections, especially in some parts of the US, continues to dominate the headlines. Asian markets show a mixed, cautious picture. RBA’s Lowe said that recent appreciation of the Aussie dollar was no problem at the moment. It partially mirrors the better position of the Australian economy for a restart of the economy. The Aussie dollar reversed a poor start this morning and is again trading in the 0.6870 area. The dollar eases slightly after Friday’s rebound. EUR/USD is trading in the 1.1200 area. USD/JPY is drifting in the upper part of the 106 big figure. Today’s eco data including the consumer confidence from the EU commission and US housing data are probably only of intraday significance for trading, at best. As was often the case of late, there is no one-on-one link between the (negative) developments with respect to the spreading of the corona virus and global sentiment on risk. US futures even show limited gains this morning. After a solid rally in May/early June, EUR/USD fell prey to profit taking. The EUR/USD momentum eased, but first important support in the 1.1160 area survives for now. We expect that area to hold and gradually look for a bottoming out process after the recent EUR/USD ‘correction’.
Sterling didn’t profit from stronger than expected UK retail sales or from the rather upbeat tone from the BoE on Thursday. On the contrary, EUR/GBP even drifted above the 0.9050 resistance. This morning, BoE’s Bailey Indicated that the Bank might reduce its balance sheet first before raising interest rates. EUR/USD is holding in the mid 0.9050 area. As long as global sentiment remains fragile, EUR/GBP is at risk of extending gains north of the key 0.9050 resistance
EUR/USD: drifting south, but 1.1160 support survives for now.
