• Rates: No impact of US’s Iran decision for now; US 10-yr yield again near 3%
    The US pulled out of the Iran nuclear deal, but the impact cross markets remained limited apart from a further surge in the oil price. Intraday momentum on bond markets is negative. US eco data remain strong and a 3-yr Note auction went weak. The US 10-yr yield approaches 3% again. Will it be sufficient to lure investor demand at tonight’s 10-yr Note auction?
  • Currencies: USD rebound continues. Euro remains in the defensive
    Yesterday, the dollar extended its gradual rebound. The US withdrawal of the Iran nuclear deal didn’t change this trend. The euro suffers additional headwinds from renewed political uncertainty in Italy. Today, there are no really high profile data to guide USD trading. For now, the complex of higher oil prices, higher US yields and a strong dollar remains in place.

The Sunrise Headlines

  • US stock markets ended unchanged even if the US pulled from the JCPOA. Most Asian equity indices trade positive overnight with Japan underperforming.
  • The US is exiting the Iranian nuclear accord, President Donald Trump said, dismantling his predecessor’s most prominent foreign-policy initiative and bucking the appeals of some of America’s closest allies. (WSJ)
  • US job openings surged to a record high in March, suggesting that a recent slowdown in hiring was probably the result of employers having difficulties finding qualified workers. The quits rate, a measure of job market confidence, rose to 2.3%. (Reuters)
  • Japan’s wages rose in March at the fastest pace in years (real wages by 0.8% Y/Y; overall cash earnings by 2.1% Y/Y), a sign that the labor market may finally be fuelling the kind of pay rises the BoJ needs to push inflation higher. (BB)
  • The House of Lords inflicted more defeats on May’s Brexit bill: one that removes the specific date of Brexit, one that pushes May to keep the UK in EU agencies, one over calls for stronger scrutiny of government lawmaking and one requiring the PM to negotiate to keep the UK in the EU Economic Area. (BB)
  • Argentina is seeking IMF aid after a series of drastic interest rates failed to stop the slide of the peso, pushing a country that only recently restored its credibility with investors back towards a financial crisis. (FT)
  • Today’s eco calendar only contains US PPI data. The RBNZ is expected to leave rates unchanged. Germany and the US tap the market. Fed Bostic speaks

Currencies: USD Rebound Continues. Euro Remains In The Defensive

USD rebound continues. Euro suffers.

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Yesterday, the dollar retained the benefit of the doubt. Markets focused on president Trump’s statement on Iran, but it wasn’t easy to adapt positions on this story. At the same time, the euro remained in the defensive. The threat of new Italian elections provided a good reason for further euro losses. Interest rate differentials were not that important for FX trading yesterday, but the ST spread between the US and Germany widened further. EUR/USD extended its decline and closed the day at 1.1864 (from 1.1922). USD/JPY was little changed at 109.13.

Overnight, Asian equities are trading mixed as investors ponder the impact the US leaving the Iran deal. The oil price (Brent) is reaching the highest level since end 2014. For now, this goes hand in hand with higher US yields and a stronger dollar. USD/JPY did some kind of catching up move this morning and trades currently at 109.50. EUR/USD is trading in the mid 1.18 area, within reach of the correction low.

Today, there are few data in EMU. In the US, the PPI prices will be published. A modest rise of 0.2% M/M is expected. We doubt that this series will provide much additional support for the dollar. Market are looking forward to tomorrow’s US CPI. Also keep an eye at the US 10-y auction. Yesterday, a mediocre 3-y auction supported higher ST yields. In theory, higher yields due to sluggish investors demand is an ambiguous story from a dollar point of view. We look out for the USD reaction in case of another weak auction. For now, the gradual USD uptrend looks well in place. At the same, political and economic headlines are keeping the euro in the defensive. There is no obvious reason to row against the established EUR/USD downtrend. Intermediate support comes in at 1.1789 ahead of the 1.1718 correction low. Also look out whether USD/JPY is able to return to the 110 area.

Yesterday, sterling basically followed the global trends of euro weakness and USD strength. The PM May suffered a new defeat on the Brexit law in the House of Lords, but it isn’t clear to what extent this will change the government’s Brexit strategy. Overnight, BRC retail sales dropped an awful 4.2 % Y/Y. Later today, there are no important data. Investors are looking forward to tomorrow’s BoE policy decision. The BoE is expected to leave the policy rate unchanged, but to keep the door open for an August rate hike. This scenario might be mildly sterling supportive. EUR weakness is a (temporary) negative for EUR/GBP, too

EUR/USD downtrend continues

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