Sunrise Market Commentary
- Rates: Watch out for stock markets
We expect trading to be sentiment-driven and technical in nature. Stock markets could influence core bond markets if yesterday’s bearish engulfing pattern in eg the German Dax results in more profit taking today. Safe haven flows are positive for bonds in this scenario and could trigger a new test of 163.43 resistance in the Bund. - Currencies: EUR/USD keeps cautious downside bias
Trading in the major dollar cross rates will again be technical in nature today as there are no important eco data. EUR/USD set a minor correction low yesterday. The move was not spectacular, but we see room for some by default EUR/USD selling if there is no high profile negative news from the US
The Sunrise Headlines
- A rally just before the bell resulted in an unchanged close for the S&P and Dow. Nasdaq (-0.27%) underperformed. Most Asian stock markets trade near opening levels overnight with China outperforming (+0.5%).
- China’s exports rose at a slower pace in October as expected, but import growth beat forecasts in a sign domestic demand remained robust despite Beijing’s crackdown on pollution that analysts say will reduce factory output and crimp overall economic growth.
- President Trump opened a door to negotiations with North Korea, shifting his tone while the US Navy prepared for a rare display of strength nearby, in a carrot-and-stick approach to the nuclear stand-off.
- Senate Republicans are considering a different approach to overhauling the tax code than their House colleagues, weighing a delay in the implementation of a corporate tax cut and other measures to alter the cost and impact of the plan.
- Philly Fed governor Harker suggested he’ll likely support a third 2017 interest-rate increase next month, but said he wants to see signs of inflation moving higher before backing tightening next year.
- Catalan secessionist parties failed to agree on a united ticket to contest a December snap regional election, making it more difficult to rule the region after the vote and press ahead with their collective bid to split from Spain.
- Today’s eco calendar is very thin with only a policy meeting by the RBNZ. Germany, Portugal and the US tap the market
Currencies: EUR/USD Keeps Cautious Downside Bias
EUR/USD maintains cautious downward bias
EUR/USD and USD/JPY trading was technical in nature yesterday. There were no important data in EMU or in the US. Interest rate differentials or equities were also unable to give guidance. EUR/USD touched a minor post-ECB correction low, but there were hardly any follow-through losses. The US equity rally ran into resistance and so did the dollar. EUR/USD closed the session at 1.1587 (from 1.1610). USD/JPY finished the session at 114.01 (from 113.71).
Asian equities trade mixed to slightly higher overnight. Several regional indices are still holding at/near multi-year record levels. Chinese trade data were mixed. Exports missed consensus and imports were close to expectations. The politically sensitive surplus with the US declined, at least on a monthly basis. The last up-leg in the global risk rally had only a limited impact on core bond yields. USD/JPY struggles to hold above the 114 level (currently 113.85). A retest/break of the 114.49/73 resistance remains a high hurdle. EUR/USD (1.1590 area) also trades off yesterday’s correction low. Uncertainty on the progress of the US tax reform might weigh on the dollar.
The eco calendar is again very thin today. There are only second tier eco data in Europe and the US. Political developments, global risk sentiment and technical considerations will have to guide USD trading. The US currency showed a mixed picture over the previous days. USD/JPY failed to break above the MT range top (114.49/114.73). EUR/USD held a tight range close to the post-ECB low. A high absolute interest rate differential apparently forced some EUR/USD longs to scale back exposure, keeping EUR/USD under (modest) downside pressure There is no obvious driver for trading today. Similar mechanisms that were at work yesterday might continue to do their job. The wide positive interest rate differential should give the dollar downside protection unless there is high profile US negative news. A less positive risk sentiment and/or further doubts on the implementation of the US tax bill will probably be more negative for USD/JPY than for performance of the dollar against the euro. (Risk of a EUR/JPY correction?).We maintain a EUR/USD sell-on-upticks bias.
From a technical point of view, EUR/USD dropped below 1.1670/62 support, but no convincing follow-through dollar gains occurred. The pair dropped temporary to a new post-ECB low yesterday. A sustained break would confirm that the recent EUR/USD uptrend is broken. EUR/USD 1.1423 (38% retracement of 2017 rise) is the next downside target on the charts. USD/JPY’s momentum was positive in past months. The pair regained 110.67/95 resistance. The pair tested the 114.49 MT range top, but the attempt failed. A sustained break would improve the technicals. We remain cautious to preposition for further USD/JPY gains.
EUR/USD maintains very gradual downside bias
EUR/GBP
Sterling rebound slows
Sterling showed a diffuse trading pattern yesterday. The UK currency initially ceded ground against the dollar, but gained a few ticks against an overall soft euro. The UK eco data were in line (Halifax house prices) to weaker than expected (very poor BRC retail sales). The impact of the data was limited, but the poor BRC sales probably helped to stop the GBP-comeback from the end of last week and earlier this week. EUR/GBP dropped temporary below 0.8800, but finished the session at the big figure. Cable initially dropped to the 1.3110 area, but the decline was reversed as the dollar declined later in the session. The pair closed the session little changed at 1.3166. In the end, the intraday swings in cable and in EUR/GBP were primarily USD and euro moves rather than sterling inspired price action.
There are no important eco data in the UK today. The focus will be on UK politics and on the restart of the Brexit negotiations. Sterling performed rather well on Friday and early this week. Investors apparently hope on some progress in the next round of Brexit negotiations. We don’t preposition for such a scenario yet. We expect EUR/GBP to stabilize/look for a bottom. A further decline of EUR/USD might hamper a EUR/GBP rebound short-term.
MT technical: Sterling rebounded in September as the BoE prepared markets for a rate hike. This rebound ran into resistance as markets anticipated that any rate hikes would be very gradual and limited. This view was confirmed at last week’s BoE policy meeting. EUR/GBP currently trades in a 0.8733/0.9033 consolidation range. A downside test of this range was rejected last week. We maintain the view that the 0.8733 -0.8652 support area will be tough to break in a sustainable way. A EUR/GBP buy-on-dips approach is favoured. EUR/GBP 0.9023/33 is the first important resistance for the EUR/GBP cross rate
EUR/GBP reverses most of post-BoE sterling decline, but no important technical levels are hit
