Sunrise Market Commentary
- Rates: A balancing act
Core bonds are looking for a new equilibrium after the past days heavy volatility. The US 10-yr yield tested the previous range top, but easily rebounded confirming that bond sentiment remains negative in the medium term. Fed speakers are wildcards today. What do they think about asset valuations and what are possible ramifications for monetary policy?
- Currencies: EUR/USD downside test rejected, at least for now
Major FX cross rates are only modestly affected by the recent spike in global volatility. EUR/USD tested the 1.2323/35 support, but a break didn’t occur. For now, there is no clear trigger for a directional move. The yen is unable to play its usual safe have role due to ‘verbal monetary interventions’ from the BOJ
The Sunrise Headlines
- US stocks markets rebounded around 2% yesterday after a heavy two-day sell-off. Asian stock markets started on a strong footing this morning, but gains are evaporating towards the end of the trading session.
- The House passed a temporary spending bill Tuesday to keep the US government open until March 23 and fund the Defence Department through September as congressional leaders closed in on a longer-term agreement.
- CBOE Global Markets has defended its flagship Vix volatility index, after investors and analysts blamed products that seek to track the measure for exacerbating this week’s ructions across global stock markets.
- New Zealand employment growth (0.5% Q/Q) slowed less than projected in Q4 2017, when a change of government caused a slump in business confidence and made firms more cautious about hiring. The jobless rate fell to a 9-yr low (4.5%).
- Wages of Japanese workers fell in December at their fastest pace in five months, in a possible sign that consumers could cut back on spending and further complicate the central bank’s quest to reach its 2% inflation target.
- The UK economy is being bailed out by stronger growth in the euro area and the rest of the world, according to the NIESR. A better-than-expected global expansion accounted for about a third of the increase in UK GDP last year.
- Today’s eco calendar only contains second tier EMU eco data. Fed governors Dudley, Kaplan, Evans and Williams are scheduled to speak. The US and Germany tap the market. The EC publishes new forecasts
Currencies: EUR/USD Downside Test Rejected, At Least For Now
EUR/USD downside test rejected, at least for now
Moves in USD remained modest yesterday given global volatility. EUR/USD dropped briefly below 1.2323/35 support in technical trade, but the pair rebounded as risk sentiment improved in US dealings. The pair closed at 1.2377. USD/JPY touched a ST correction low below 108.50 in Asia, but rebounded later as volatility eased. The intraday rebound of core yields was also a yen negative as the BOJ repeated that monetary conditions will remain extremely loose in the foreseeable future. USD/JPY closed the session at 109.56.
Equities opened with decent gains overnight, joining the rebound on WS, but positive momentum dwindled. So, the jury is still out whether the risk-off correction is really over. Japanese real wages declined 0.5% Y/Y in December, reinforcing the BOJ’s case to maintain its ultra-easy policy. The data didn’t cause any further yen losses. USD/JPY is drifting back south in the 109 big figure. EUR/USD is holding near 1.2375.
There are few data with market moving potential today. The forecasts from the European commission will confirm bright prospects for the European economy in 2018, but shouldn’t have a big impact on markets.
Over the previous days, FX markets were relatively little affected by the rise in global volatility. The yen was unable to play its safe haven role the way it did in the past, as the BOJ stressed it won’t join the global monetary normalization anytime soon. A break below USD/JPY 108.28 would indicate that markets are question the BOJ’s approach. EUR/USD showed no clear pattern, holding a sideways trading range. For now, there is no obvious trigger to push the pair out of this range. For a downside break, EUR/USD probably needs the help of correction in EUR/JPY, even as yen gains don’ t look easy currently. Technical picture: the dollar decline slowed of late, but no meaningful rebound occurred. EUR/USD 1.2537/98 remains the first topside resistance. A break would signal more trouble for USD short term. The 1.2323/35 support was tested yesterday , but no sustained break occurred. A break below 1.2165 would call off the ST downside alert (for USD).
EUR/GBP traded temporary north of 0.89 yesterday. Uncertainty on Brexit and technical considerations weighed on sterling. There are no important UK eco data today. Investors look forward to tomorrow’s BoE meeting. A break above 0.8928 would deteriorate the ST picture for sterling, opening the way for a return to the 0.9000/0.9033 range top.
EUR/USD: first test of 1.2323/35 support rejected