Sunrise Market Commentary
- Rates: Big day ahead
Today’s eco calendar heats up with EMU CPI, US Payrolls and US non-manufacturing ISM. We have a positive intraday bias for core bonds especially if this week’s risk/oil rally shows signs of fatigue. The risk scenario is a big upward surprise in the average hourly earnings components in the US payrolls report. - Currencies: EUR/USD testing range top ahead of the US payrolls
Yesterday, the dollar showed a mixed picture and couldn’t fully profit from a very strong ADP labour market report. Today, EMU inflation is expected soft, but it isn’t evident that this will break the strong euro momentum. The dollar probably needs very strong payrolls and, in particular strong wage data, to change fortunes
The Sunrise Headlines
- US stock markets closed positively with Nasdaq slightly underperforming because of the Intel chip’s flaws. Asian stock markets copy WS’s positive risk sentiment with Korea and Japan outperforming.
- The Trump administration proposed opening up nearly all the country’s offshore areas for oil and gas drilling, a move that would touch every coastal state, some that have been off limits to drillers for decades.
- Australia’s trade deficit widened to A$628 million ($494 million) in November from a revised A$302 million a month earlier. Expectations were for an A$550 million surplus. AUD/USD slightly suffered, declining to 0.7850.
- UK shop prices slipped further into deflationary territory as retailers offered discounts on non-food products, according to the British Retail Consortium. The BRC-Nielsen shop price index found prices fell 0.6% Y/Y in December.
- China released new rules tightening bond trading regulations, with a focus on restricting leverage and banning under-the-table deals.
- North Korea accepted a proposal to hold talks with South Korea on Tuesday, reducing tensions as President Moon Jae-in’s government prepares to host the Winter Olympics next month.
- Today’s eco calendar heats up with EMU CPI data, US payrolls and US non-manufacturing ISM. Fed Harker and Mester are scheduled to speak
Currencies: EUR/USD Testing Range Top Ahead Of The US Payrolls
EUR/USD testing cycle top ahead of payrolls
The dollar showed a mixed picture yesterday. It returned most of Wednesday’s gains against the euro. A very strong ADP labour report couldn’t change fortunes in favour of the dollar. Strong growth prospects for EMU kept the euro well supported. EUR/USD tested the 1.2081/92 range top, but a break didn’t occur (close at 1.2068). At the same time, USD/JPY profited from slightly higher US yields and buoyant risk sentiment. The pair filled offers in the 112.85 area and closed at 112.75. The combined rise of both EUR/USD and USD/JPY propelled EUR/JPY above 136, the highest level since October 2015.
The risk rally continues overnight, but the pace is easing a bit. The USD trading pattern persists. EUR/USD holds within reach of the 2017 top. USD/JPY maintains a good bid and tries to regain the 113 handle. The recent rally of the Aussie dollar was blocked as the country recorded an unexpected trade deficit in November. AUD/USD returned to the 0.7850 area. Today, the EMU December CPI is expected to have declined to 1.4% Y/Y from 1.5%. A big base effect is at play. An upward surprise looks unlikely. Question is whether a soft EMU CPI will block the recent strong euro momentum. In the US, the payrolls, the nonmanufacturing ISM, the trade balance and the order data will be published. Evidently, the focus will be on the payrolls and in particular on the wage data. The consensus expects a rise of 0.3% M/M and 2.5% Y/Y. This consensus probably needs to be met (or surpassed) to prevent further USD losses. Recently, the greenback suffered as the global recovery might force other major CB’s (including ECB) to join policy normalisation. For now, we maintained the working hypothesis that enough good news on the euro/’bad news’ on the dollar was discounted and that a sustained break beyond the 1.2092 cycle top is not evident. Today’s payrolls (wage data) might decide whether this approach remains valid.
Yesterday, UK eco data had only a limited impact on sterling trading. The overall rise of the euro helped EUR/GBP to regain the 0.89 barrier. Cable (close 1.3550) gained slightly as the dollar held a soft bias. There are only second tier UK eco data today. Sterling is rather well bid this morning despite soft BRC shop price data. EUR/GBP struggles not the fall back below the 0.89 mark. We expect more sideways trading today. Recent UK data were mixed. We don’t expect the BoE to raise interest rates soon. EUR/GBP 0.8700/60 support looks solid. Euro strength or soft UK data might keep EUR/GBP 0.90 on the radar further down the road. We keep a EUR/GBP buy-on-dips in case of return action to 0.87
EUR/USD holding near 1.2092 range top going into US payrolls report
