- Rates: Global core bonds ended slightly lower
Stronger US retail sales and for the European markets, some catching up with US Treasury losses on the Stanley Fisher rumour, defined another low volume session. Today, there are again few eco data or events on the calendar, but the technical picture of the US Note future is interesting, retaining our attention.
- Currencies: EUR/USD rally slowing?
Yesterday, EUR/USD again failed to regain the 1.3832 year top. Is the EUR/USD rally finally running into resistance? USD/JPY is testing the 103.74 reaction top. Today, the calendar is thin. Will the dollar be better bid ahead of the Fed meeting next week?
The Sunrise Headlines
- US stock markets ended mixed to slightly higher as strong corporate earnings balanced the rise in US yields. Asian sentiment is mostly positive with China underperforming on rumours of an FBI probe into Huawei.
- The ECB won’t alter its forward guidance at today’s policy meeting. Such changes are expected in June or July. We expect Draghi to keep a positive tone despite the recent setback in some economic indicators.
- French President Macron said it was his “bet” that President Trump would withdraw the US from the Iran nuclear deal, a move he said would lead to a period of heightened tensions with an outcome that was hard to predict. (WSJ)
- BoC Governor Poloz said the economy was “finally positive” after a long adjustment, even if there was still softness in several areas of the country. The neutral rate is somewhere between 2.5% and 3.5%. (Reuters)
- China’s cabinet, is weighing proposals to reduce the levy on imported cars to 10 percent or 15%, according to people, who asked not to be identified as the information isn’t public. The current rate is 25%. (BB)
- South Korea’s economy bounced back last quarter (1.1% Q/Q from -0.2% Q/Q), buoyed by booming exports of data memory chips and a boost from government spending, although private consumption was sluggish. (Reuters)
- Focus turns to the ECB meeting today. The Swedish Riksbank meets as well. Eco data include US weekly jobless claims, trade balance and durable goods orders. The US ends its supply operation with a $29bn 7-yr Note auction
Currencies: EUR/USD Rally Slowing?
Will Draghi comments slow EUR/USD decline?
The established trends in (US) yields and the dollar basically continued yesterday.US yields drifted higher and several maturities are testing high profile resistance levels. This momentum in US yields also supported the dollar, but the pace of the USD rebound remained gradual. Some euro softness ahead of the ECB meeting was probably also at play. EUR/USD closed the session at 1.2161, but a real test of the 1.2155 support didn’t occur yet. USD/JPY finished the day at 109.43.
Overnight, Asian equities show a mixed picture. Some tech-related stocks are supported by good results from Facebook and Samsung Electronics. Chinese equity markets again underperform. The USD maintains most of its recent gains. USD/JPY trades around 109.35. EUR/USD ‘rebounded’ to the 1.2175 area. Oil ($74.40 p/b) is holding up well after a slowdown in the rally over previous two days.
The US eco calendar is well filled today with durable goods orders, trade balance, jobless claims and inventory data. Growth in durable orders is expected to slow after a rebound in February. Good US data might support the positive momentum in US yields and the dollar, but the upcoming data (GDP tomorrow and early month data next week) are probably more important. The ECB is expected to maintain its assessment from March. Recent data were soft, but Draghi will probably confirm that growth remains solid and that inflation is improving. His message might be less soft than what recent data suggested. Question is whether any ‘less dovish tone’ will be enough to stop the EUR/USD slide, which is basically inspired by USD strength. The jury is still out, but we see a decent chance of EUR/USD breaking the 1.2155 range bottom if the upcoming US data are OK. The trade-weighted dollar already broke beyond the top of the ST range.
EUR/GBP developed a tentative intraday downtrend yesterday. We assume that some underlying euro strength was at play. Cable declined from the 1.40 area to close the day 1.3932, mostly due to USD strength. There was no high profile news on Brexit issues. CBI retail data will be published today. A cautious improvement is expected after a deterioration in previous months (-3 from -8). The impact of the CBI data on sterling is usually modest. We expect more technical trading with markets looking forward to the UK Q1 GDP release tomorrow.
USD trade-weighted (DXY) tries to break out of recent consolidation pattern