- Rates: Fed wants stronger forward guidance, but not by YCC
German Bunds underperformed US Treasuries in what was still a technical move. FOMC Minutes revealed willingness to strengthen forward guidance on interest rates and/or asset purchases, but not so by introducing yield curve control. Yesterday’s swings in US ADP suggest difficulties to both predict and interpret today’s US payrolls.
- Currencies: dollar fails to extend upside momentum
Sentiment on risk yesterday improved throughout the day and eased the bid for the dollar yesterday. Another test of the EUR/USD 1.12 area was rejected. USD/JPY also joined the broader USD correction. Today, a solid US payrolls report probably won’t help the dollar. Global sentiment dominates FX trading. EUR/GBP is correcting lower, nearing the 0.90 support
The Sunrise Headlines
- US equities closed mixed-to-positive. Tech surged thanks to positive vaccine developments. Nasdaq (+0.95%) set a new all-time high even as virus cases soar. Asian-Pacific markets inch higher in lockstep. Australia (+1.65%) outperforms.
- California banned indoor dining in some areas after recording record infections. NY delayed a scheduled reopen of such services. Arizona reported a record rise in cases & emergency room visits. Houston (Texas) hospitals reach overcapacity.
- Fed minutes showed growing consensus among the governors to provide more guidance to its monetary policy intentions though refrained from giving a timing for such a move. Officials showed no readiness to for yield curve control.
- Irish finance minister and potential head of the Eurogroup Donohoe warned the EU against going it alone with a digital levy as it risks stoking trade tensions. He said talks between the US, EU and OECD are paused rather than stopped.
- ECB’s Rehn said the large take-up of the TLTROs is a good thing and will hopefully be reflected in an easing of monetary conditions. Though there are risks that the funds will be used to offer credit to zombie firms.
- The US House of Representatives unanimously passed a bill imposing sanctions on banks doing business with Chinese officials involved in suppressing HK demonstrations. The bill is expected to be approved by the Senate today.
- Today’s economic calendar contains key US labour data with nonfarm payrolls due a day earlier than usual and weekly/continuing jobless claims. France and Spain sell bonds. Several ECB speeches are due.
Currencies: Dollar Fails To Extend Upside Momentum
Dollar bid fades again
Global sentiment improved as yesterday’s session developed, easing the bid for the dollar. Eco data again only played a secondary role. The dollar traded strong early in Europe with the TW dollar (DXY) touching 97.60. EUR/USD filled bid below 1.12 even as EMU PMIs and German labour and retail data beat expectations. A rise in core EMU yields initially also didn’t help the euro. The dollar turn south in US dealings. Positive test results for a new corona vaccine and a solid US manufacturing ISM (52.6 from 43.1) supported an equity rebound. EUR/USD even closed with a modest gain (1.1251 from 1.1234). USD/JPY didn’t profit from the risk-on and mainly followed the broader USD decline (close at 107.47).
This morning, Asian equities join the risk rally from WS despite rising tensions between China and the US on the implementation of the National security law in Hong Kong and a record rise in new infections in the US. EUR/USD extends gains (1.1265 area). USD/JPY stabilizes (107.50 area) but again doesn’t profit from the risk-on. The yuan (USD/CNY 7.0675) hardly profits from yesterday USD decline even as the PBOC put the daily fix rather strong. AUD/USD regained the 0.69 barrier, with recent top levels still with reach (AUD resilience). Today’s focus is on the US payrolls. The report will be released today as US markets are closed for the 4th of July tomorrow. Job growth is expected to recover by 3.058 mln after last month’s surprise gain of 2.5 mln. There are probably statistical issues in play that might complicate the outcome, but the consensus estimate looks reasonable. Yesterday, the dollar declined further after a strong ISM due to the positive risk-off. This might still be the case with a constructive payrolls report. EUR/USD settled in a ST consolidation pattern near 1.12. The picture turned a bit more fragile but the 1.12/1.1160 support proved quite solid and this was confirmed yesterday. We look for confirmation on an EUR/USD bottoming out process. A break above 1.1288 would give some comfort with 1.1349 next reference on the charts.
Sterling further reversed the sharp loss against the euro earlier this week. EUR/GBP drifted further south in the 0.90 big figure. The move was mainly technical in nature, but was also supported by rebound in UK yields. There are no UK data today. Headlines on the process of the Brexit talks again show little progress. We expect the sterling rebound to slow with EUR/GBP 0.90 area a first technical support
EUR/USD: looking for a bottom after rejected test of 1.12 area?