Sunrise Market Commentary
- Rates: Cautiousness ahead of key events?
Today’s trading might be paralyzed with key event risk looming. The US Senate has a vote scheduled after European trading to end the government shutdown. A positive outcome could push US yield through key resistance levels. Tomorrow morning’s BoJ meeting and Thursday’s ECB gathering are this week’s other highlights. - Currencies: USD withstands US government shutdown
The dollar struggled to prevent further losses, but sentiment seems to be changing since the end last week and this morning. The greenback suffered no further damage from the political uncertainty due the US government shutdown. Will USD finally profit from rising interest rate support once the shutdown is ‘solved’?
The Sunrise Headlines
- US stock markets ended 0.2% to 0.5% higher on Friday despite the looming vote to avoid a government shutdown. Asian stock markets trade with similar gains this morning with Japan and Korea underperforming.
- Germany took a big step towards forming a new government when the SPD voted in favour of formal coalition talks that could give Merkel a fourth term in office and break a four-month political deadlock.
- A US government shutdown will enter its third day as Senate negotiators failed to reach agreement to restore federal spending authority and deal with demands from Democrats that young "Dreamers" be protected from deportation. A new vote is set for today at 6pm CET.
- The Fed should continue to raise rates at a gradual pace during 2018 (‘3 rate hikes is good starting point’), SF Fed President Williams said, saying he expects the recent tax cuts and other tailwinds to boost economic growth this year.
- OPEC and Russia reaffirmed their oil-cut alliance may endure past 2018. Russia is prepared to continue cooperating with the cartel and Saudi Arabia even after the deal expires, Energy Minister Novak said.
- Greece’s sovereign credit rating was raised one level by S&P to B (positive outlook). EMU FM’s meet today to assess the country’s compliance with bailout terms and could sign off on loan disbursements of about €6.7 bn.
- Spain’s credit rating was raised one level at Fitch, from BBB+ to A- (stable outlook), which said the country’s ‘buoyant’ economic growth has helped reduce the government’s general deficit.
Currencies: USD Withstands US Government Shutdown
USD withstands US government shutdown
The US government shutdown debate dominated the headlines on Friday, but there was no risk-aversion. US yields, equities and the dollar even traded with a upward bias as the US session proceeded. US bond yields tested resistance levels. The dollar held up well even as the political stalemate persisted. EUR/USD finished the session at 1.2222 (from 1.2238). USD/JPY closed the day slightly lower at 110.77.
The US Senate didn’t agree on a spending bill. There was a slight retracement on Friday’s reflation trade at the start in Asia this morning, but the move didn’t went far. US yields decline slightly but the test of key technical levels is ongoing. The dollar opened slightly softer, but EUR/USD and USD/JPY soon rebounded back to Friday’s closing levels.
The eco calendar is empty today. European news is constructive with the German SPD members giving green light for coalition talks. Spain and Greece enjoyed a rate upgrade on Friday. For now, this doesn’t help the euro much. Markets will look out for a new vote on a temporary spending bill scheduled for CET 18.00. USD trading might remain erratic and driven by the news flow from Washington. That said, USD sentiment doesn’t look too bad this morning. Is the US currency finally receiving some support from higher US yields?
Global Picture: the dollar was in the defensive of late as markets prepare for a change in policy from central banks outside the US. This propelled EUR/USD despite a huge interest rate differential in favour of the dollar. The USD decline slowed last week, but any ‘rebound’ remained unconvincing. A return below previous resistance at 1.2092 is needed to call off the ST alert for the dollar. EUR/USD 1.2598 (62% retracement) is next important resistance on the charts.
Disappointing UK retail sales mitigated sterling’s positive momentum last week, but the damage for the UK currency was limited. EUR/GBP gradually returned to intermediate support in the low 0.88 area (probably inspired by the intraday EUR/USD price trend. Later this week, the UK CBI order data (Tuesday), labour data (Wednesday) and the first Q4 GDP estimate will be published. Of late, UK eco data were mostly only of intraday significance for sterling trading. Even so, a break below the 0.8800/10 area, might open the way for a retracement toward the 0.87 support, which we still consider a tough resistance
EUR/USD: stays away from recent top despite US political uncertainty
