Sunrise Market Commentary

  • Rates: Core yields holding near recent top head of US CPI
    Yesterday, core bond yields held tight ranges near the recent peak as equities rebounded from last week’s sell-off. Today, the calendar is again thin. More technical trading might be on the cards as markets look forward to tomorrow’s US CPI. Global risk sentiment remains a wildcards.
  • Currencies: USD rally running into resistance?
    Yesterday, the dollar lost slightly ground as sentiment on risk turned further positive. This morning, the US currency feels further selling pressure, with USD/JPY taking the lead. We expect more technical trading in the EUR/USD 1.22/24 trading range. EUR/GBP is nearing the 0.89 level. Today, UK CPI data might set the tone for GBP-trading

The Sunrise Headlines

  • US equities continued Friday’s comeback, closing the day with gains between 1.40% and 1.70%, the Dow Jones outperforming. Most Asian indices are also trading with good gains this morning. Chinese equities outperform. Japan trades in slightly negative territory as markets reopen after a long weekend.
  • On Monday, President Donald Trump proposed a budget that calls for cuts in domestic spending and social programs such as Medicare and seeks a sharp increase in military spending and funding for a wall on the Mexican border..
  • South Africa’s ruling African National Congress decided to tell President Jacob Zuma to step down after he refused the top party leadership’s request for him to resign voluntarily, according to five people familiar with the matter.
  • Assistant governor of the Rank of Australia, Luci Ellis, said any pick up in wage growth was likely to be slow and protracted, weighing on household incomes and spending power amid high levels of debt. Australia still has more spare capacity than other developed countries, meaning it would take longer for wages and inflation to accelerate.
  • The Japanese government wants Kuroda to serve another term as governor, according to a senior government official. PM Abe said he hasn’t decided yet who to pick as next BOJ governor, but rebuffed calls from an opposition lawmaker to replace Kuroda given the pain the BOJ’s negative interest rate policy was inflicting on commercial banks.
  • Today’s eco calendar is again thin in Europe. In the US, the NFIB small business confidence will be published. In the UK, the January price data take centre stage. Fed’s Mester will speak on monetary policy and on the economic outlook. Italy will sell bonds of different maturities

Currencies: USD Rally Running Into Resistance?

USD rally running into resistance?

Last week, USD trading was only modestly affected as global volatility rose sharply. Yesterday, USD trading develop along the same lines. Equities recouped part of last week’s sell-off. The dollar lost slightly ground against the euro, but the EUR/USD rise was capped near 1.23. USD/JPY was also little affected by the risk rebound, hovering in a tight range in the 108 big figure. The price action mainly occurred in equities with little impact on bonds and even less on the major USD cross rates. USD/JPY closed the day at 108.66. EUR/USD finished at 1.2292.

Asian equities mostly join the rebound from WS yesterday, with China outperforming. However regional indices are giving up part of the earlier gains toward the end of the session. Japanese equities are trading in negative territory as markets reopen after a long weekend. The dollar is ceding ground, with USD/JPY taking the lead. The pair trades in the 108.10 area. EUR/USD tries to regain the 1.23 mark. The USD correction occurs as US yields ease slightly this morning.

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Today, the calendar is again thin. US NIFB small business confidence is expected to rebound from 104.9 to 105.3 after a decline last month. Fed’s Mester will speak on Monetary policy (with Q&A). Will she give her view on recent market developments? FX traders will also keep an eye on bond and equity markets, even as they had little impact on the dollar of late. This morning, the dollar is ceding ground. This decline is a bit ‘strange’ given the intraday price development on Asian equity markets. Even so, we assume EUR/USD to maintain a wait-and see modus in the 1.22/1.24 area going into tomorrow’s US CPI release. Technically, the dollar decline slowed. EUR/USD dropped below the 1.2323/35 support but follow-through price action was modest. A break below 1.2165 would call off the ST downside alert (for USD).

Yesterday, BoE’s Vlieghe reiterated that probably slightly more than three rate hikes are needed to keep inflation on target. It didn’t help sterling. EUR/GBP closed at 0.8884. Today, the UK price data will be published. Headline CPI is expected to ease to 2.9% Y/Y, but other price indicators might paint a slightly different picture. A big positive surprise is probably needed to trigger a sustained comeback of sterling. Brexit uncertainty remains a sterling negative. EUR/GBP is trending higher in the 0.8690/0.9033 trading range, with intermediate resistance at 0.8930. We hold our view that the 0.8690 support probably won’t be easy to break without big progress on Brexit.

USD trade-weighted (DXY): dollar rebound running into resistance?

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