Sample Category Title

Pivot (invalidation): 12200.00

Our preference Long positions above 12200.00 with targets at 12455.00 & 12548.00 in extension.

Alternative scenario Below 12200.00 look for further downside with 12110.00 & 11980.00 as targets.

Comment The RSI is bullish and calls for further advance.

• Rates: Draghi sends bonds sky-high. Encore from Powell?
  ECB's Draghi Sintra speech marked the cue of another massive core bond rally. Euribor forward rates now discount a 20 bps deposit rate cut by mid next year. German yields set all time lows from 4yr+ tenors. The Fed is expected to show determination to cut rates to extend the economic expansion. The US 10-yr yield's 2.01% support is at risk of a break lower.
• Currencies: Draghi pushing EUR/USD below 1.12. Powell to prevent further USD rally?
  The euro declined as Draghi signaled further policy easing yesterday. Still the EUR/USD loss was modest as markets await a soft assessment at today's Fed policy meeting, too. We don't expect the dollar to get any meaningful interest rate support after today's Fed meeting. The topside for the dollar might remain tough.

The Sunrise Headlines

• US stocks jumped amid hopes over progress in the US/Sino trade talks. The Nasdaq (+1.39%) outperformed. Asian equities follow in lockstep with strong gains for China (+2%).
• President Trump and Xi Jinping will hold an “extended meeting” at the G20 summit end of June. USTR Lighthizer told senators the US will stay tough though while Commerce Secretary Ross downplayed the prospect of a deal near term.
• Johnson extended his lead in the Tory election race, winning support from 126 MPs in the second ballot yesterday. Raab drops out. A third round tonight will narrow down the list to four with a final vote planned for tomorrow.
• The US government is considering sanctions to punish Turkey for buying Russian military equipment which could kick in as early as July. The Turkish lira lost up to 1.5% in an immediate reaction.
• China's central bank and securities regulator urged big banks and brokerages to increase interbank financing to avert a funding squeeze as the government seizure of a small lender weeks ago still reverberates through the market.
• President Trump requested White House lawyers in February to examine the demoting Fed's Powell from chair to governor. They concluded a case could be made for replacing him with another sitting Fed governor.
• In today's economic calendar all eyes are on the Fed meeting (incl. new forecasts and dot plot). UK inflation data is due. EC's Juncker speaks at the ECB event in Sintra which will be concluded later by Draghi. Germany sells bonds

Currencies: Draghi Pushing EUR/USD Below 1.12. Powell To Prevent Further USD Rally?

Will Fed be soft enough to prevent USD rebound?

Yesterday was supposed the be a calm day for global (FX) trading as investors awaited today's Fed meeting. However, ECB's Draghi and US president Trump changed the script. Draghi indicated new ECB easing if the economy doesn't improve. EUR/USD dropped below the 1.12 handle, but the loss stayed modest. US president Trump immediately accused Draghi of creating an unwarranted competitive advantage, indicating US unease with the strong dollar. Later, the US president said he will meet president Xi at the G20 meeting. The prospect of ECB (& global) stimulus and trade optimism triggered a risk rally. EUR/USD stabilised near 1.12. USD/JPY rebounded and closed at 108.45.

This morning, Asian equities are joining yesterday's risk rally, but the moves in the major currency cross rates remain limited. EUR/USD hovers just below 1.12. USD/JPY is losing a few ticks (108.35 area). The yuan (USD/CNY 6.9050 area) maintains its overnight gain, but there is no follow-through price action. The Aussie dollar (AUD/USD 0.6875) trades off recent lows on renewed trade optimism.

Today, all eyes are on the Fed decision and press conference. We expect the Fed to open the door for easing policy if the economy where to lose momentum and/or inflation would drift lower. If so, markets might see this as more or less confirming its anticipation on rate cuts. So, the dollar probably won't regain much interest rate support. We also look out whether Powell gives an assessment on the dollar. If he sees USD strength as tightening monetary conditions, it could be a USD negative. There are several factors to affect the first USD reaction (new Fed guidance, dots, reaction of the interest rate markets …). Even so, we expect the overall Fed assessment to be soft enough to prevent a sustained USD rebound. EUR/USD 1.11 remains the line in the sand. EUR/GBP declined off earlier highs in the 0.8970 area yesterday. The move was mostly inspired by the post-Draghi decline of the euro. Boris Johnson holding the lead in the race of the Conservative leadership had no (additional) negative impact on sterling. Today, the UK CPI and the next vote in the leadership contest might affect sterling trading. Markets are also keen to see whether the BoE (tomorrow) will hold its tightening bias. EUR/GBP shows no clear trend. The EUR/GBP 0.90/91 resistance is again on the radar, but probably won't be that easy to break

Will Fed be soft enough to prevent USD rebound. EUR/USD 1.11 remains line in the sand

Fed is widely expected to keep federal funds rate unchanged at 2.25-2.50% today. After recent rhetorics from Fed officials, markets are now looking for clues on rate cuts later in the year. As of yesterday, Fed fund futures are pricing in 85.3% of an "insurance" cut in July to 2.00-2.25%. By December meeting, markets see 83.6% chance of a total of two cuts to bring interest rates to 1.75-2.00%. However, in our view, the pricings are based on assumption of further worsening of US-China trade war. Such expectations could drastically change after Trump's "extended meeting" with Xi at G20 next week.

As for today's announcement, a major focus is this sentence in the statement: "the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate". Change in the statement to remove the element of "patience" will be a strong indication that Fed is ready to move. Otherwise, July could be a little too soon for the "insurance" cut.

Additionally, we'd emphasize that the changes in the statement have to be confirmed by new economic projections. In March, 2019 median projections forecasts GDP to grow 2.1%, unemployment rate to be at 3.7%, core PCE to be at 2.0%. There have to be material downgrades in the numbers, in particular core PCE, support Fed's cut. And of course, Fed projected interest rates to be at 2.4%, that is no change from current 2.25-2.50%, by the end of 2019. This figure has to be revised down too. After all, we believe that the high uncertainty of trade war should be disregarded in the forecasts. So, if they're dovish, they're really dovish.

Fed's March projections:

Here are some suggested readings on FOMC:

• FOMC Preview – Preparing for Rate Cut
• FOMC Preview: Powell Likely to Stay on Hold, Open the Door to a July Cut
• Fed's Upcoming Rate Decision Could be "Trade-Biased"

Pivot (invalidation): 5.8510

Our preference Short positions below 5.8510 with targets at 5.8150 & 5.7970 in extension.

Alternative scenario Above 5.8510 look for further upside with 5.8760 & 5.9050 as targets.

Comment A break below 5.8150 would trigger a drop towards 5.7970.

Pivot (invalidation): 0.6860

Our preference Long positions above 0.6860 with targets at 0.6885 & 0.6905 in extension.

Alternative scenario Below 0.6860 look for further downside with 0.6845 & 0.6830 as targets.

Comment The RSI advocates for further upside.

Pivot (invalidation): 1.3395

Our preference Short positions below 1.3395 with targets at 1.3360 & 1.3345 in extension.

Alternative scenario Above 1.3395 look for further upside with 1.3415 & 1.3430 as targets.

Comment Even though a continuation of the technical rebound cannot be ruled out, its extent should be limited.

Pivot (invalidation): 0.9990

Our preference Long positions above 0.9990 with targets at 1.0025 & 1.0045 in extension.

Alternative scenario Below 0.9990 look for further downside with 0.9975 & 0.9960 as targets.

Comment The RSI is bullish and calls for further upside.

Pivot (invalidation): 108.35

Our preference Long positions above 108.35 with targets at 108.70 & 108.90 in extension.

Alternative scenario Below 108.35 look for further downside with 108.20 & 108.05 as targets.

Comment A support base at 108.35 has formed and has allowed for a temporary stabilisation.

Pivot (invalidation): 1.2540

Our preference Long positions above 1.2540 with targets at 1.2580 & 1.2600 in extension.

Alternative scenario Below 1.2540 look for further downside with 1.2510 & 1.2490 as targets.

Comment The RSI advocates for further advance.

Pivot (invalidation): 1.1210

Our preference Short positions below 1.1210 with targets at 1.1180 & 1.1160 in extension.

Alternative scenario Above 1.1210 look for further upside with 1.1225 & 1.1240 as targets.

Comment A break below 1.1180 would trigger a drop towards 1.1160.