Sample Category Title

• Rates: US 10yr/3m spread at lowest level since global financial crisis
  US yields fell hard yesterday, with the 10-yr yield falling below key support levels, paving the way for a return to the 62%- retracement level (2.06%). The US 10yr/3m falling to levels not seen since the global financial crisis further dims risk sentiment today, supporting core bonds. Today’s eco calendar only offers secondary data.
• Currencies: Dollar holding strong even as US yields nosedive
  Trade tensions are reinforcing the global risk-off correction. The US expanded the list of countries it is monitory on currency manipulation and US yields are declining. Even so, the dollar is holding strong. Today, eco data are second tier. How much more loss of interest rate support can de dollar sustain before it will weigh on its performance?

The Sunrise Headlines

• Trade and growth uncertainty grabbed US equities by the throat yesterday. The Dow Jones underperformed (-0.93%). Most Asian stocks follow the US in lockstep, with Korea leading the losses.
• Bond rates were also slapped with the New Zealand 10y trading at a 1.70% record low. The German 10y (-0.16%) eyes the all-time low of -0.20%. The US 3M-10y yield curve inverted, hovering near mid 2007 levels.
• In the latest twist of the trade war, China could restrict access of US companies to the country’s rare-earth resources used for making electronics and defense products.
• The EU gathering to discuss the next leaders of the EU’s institutions showed differences between key players Merkel and Macron. Current EU Council president Tusk expects a decision to be made at the June 21 summit.
• China is not a currency manipulator, the US Treasury again concluded in its semi-annual report. However, conditions to be labelled as such have softened. Five nations, including Italy and Ireland, were added to the watch list as a result.
• US home prices decelerated for a 12th straight month in March, printing at 2.68% YoY (0.1% MoM). Conference Board consumer confidence (134.1) surprised on the upside and is just 3.8 points shy of its cycle high.
• Today’s economic calendar is of second tier importance. The Bank of Canada convenes. German unemployment data, Swedish and (final) French GDP are due in Europe. The US and Germany tap the bond market.

Currencies: Dollar Holding Strong Even As US Yields Nosedive

The dollar faced conflicting signals, but retained the benefit of the doubt. European equities failed to build on Asian gains. Even so, the euro received temporary support from decent EU confidence and money supply data, holding in the high 1.11 area. Later, US consumer confidence was strong but didn’t help market sentiment. US Equities reversed earlier gains as trade tensions persisted. A classic risk-off move developed with core yields, USD/JPY, EUR/USD and EUR/JPY declining. A substantial narrowing in the US-German interest rate differential didn’t help the euro. EUR/USD closed at 1.1160. USD/JPY finished at 109.38.

This morning, risk-off weighs on Asian equities, but losses remain orderly. Trade tensions are taking centre stage as the US published a list of countries it is monitoring on FX manipulation. China is stepping it rhetoric on the use of rare earths as a weapon in the trade war. The USD is holding strong, even as US yields are declining sharply. USD/CNY (6.9150 area) is testing recent top. EUR/USD is trades near 1.1165. USD/JPY hovers in the 109.25 area. Today, the eco calendar only contains second tier EMU and US data. The sharp decline in US yields and the flatting yield curve suggests markets are expecting difficult times ahead with multiple Fed rate cuts. For now, US-German spread narrowing didn’t support EUR/USD much, as the situation in EMU remains fragile, too. Still, we are cautious on sustained USD gains, especially as there are ever more signs that the US wants a weaker dollar. Last week, EUR/USD tested the 1.1110 support, but no sustained break occurred. A broader USD up-move was capped as investors anticipate more Fed rate cuts as trade tensions might hurt US growth, too. Next week’s key US data will bring an update in this debate. In the meantime, the EUR/USD downside looks again better protected. Some modest/limited gains in the 1.1110/1.1324 range are possible with intermate resistance at 1.1265.

Sterling still hovered near recent lows against the euro and the dollar as uncertainty on Brexit and on the succession of PM May persisted. However, there was again little high profile news on the issue. EUR/GBP hovered in the 0.8800/0.8840 area. Today, more technical trading could be on the cards for sterling. A further deterioration of global sentiment is probably no help for sterling. Will EUR/GBP finally break the 0.8840 resistance area

USD-trade-weighted (DXY): dollar holding strong even as US yields decline sharply

Daily Pivots: (S1) 121.80; (P) 122.26; (R1) 122.51; More....

EUR/JPY drops to as low as 121.79 today. Break of 122.08 support indicates resumption of whole fall from 127.50. Intraday bias is back on the downside. Current fall should target a test on 118.62 low next. On the upside, break of 123.73 resistance is needed to signal short term bottoming. Otherwise, outlook will remain bearish in case of recovery.

In the bigger picture, current development argues that rebound from 118.62 is merely a correction and has completed at 127.50. EUR/JPY is staying in long term falling channel from 137.49 (2018 high). Decisive break of 118.62 will confirm resumption of this medium term fall and target 109.20 low. For now, this will be the favored case as long as 125.23 resistance holds.

Yen and Swiss Franc are finally showing some strength today. There was no special escalation in US-China relationship as the former refrained from naming the latter as currency manipulator. But recovery attempts in stocks were rather short lived. Selloff in stocks is in tandem with free fall in treasury yields, which is started in Germany yesterday, passed to the US, then back to Germany again today. Commodity currencies are generally back under pressure today. Euro and Dollar are mixed.

Technically, EUR/JPY finally broke 122.08 support to resume recent fall from 127.05. We'd maintain the bearish view that 118.62 low is the next target, and will pay attention to sign of downside acceleration. EUR/CHF's recovery also faltered ahead of 1.1292 minor resistance. Thus, there is no confirmation on near term bullish reversal. Focus could be quickly back to 1.1162 key support level. USD/CAD is showing some strength today and could have a take on 1.3521 resistance. Though, whether USD/CAD could firmly breakout from recent range will eventually depend much on BoC rate statement.

In other markets, currently, all major European indices, FTSE, DAX and CAC open mildly lower. German 10-year yield is down -0.0024 at -0.16. In Asia, Nikkei dropped -1.21%. Hong Kong HSI is down -0.42%. China Shanghai SSE bucked the trend is gained 0.21%. Singapore Strait Times is down -0.33%. Japan 10-year JGB yield is down -0.0239 at -0.095. Overnight, DOW dropped -0.93%. S&P 500 dropped -0.84%. NASDAQ dropped -0.39%. 10-year yield extended recent steel fall to 2.268, down -0.056.

US Treasury said limited Yuan intervention seen, but urges China to avoid a persistently weak currency

US Treasury announced that nine countries are put in the "monitoring list" on currency manipulation, but no major trading partner is named as manipulator. The nine countries include China, Germany, Ireland, Italy, Japan, Korea, Malaysia, Singapore, and Vietnam. That conclusion was made even after the Treasury revised and updated the thresholds it uses to assess where unfair currency practices or imbalanced macroeconomic policies may be emerging.

In the statement, US Treasury Secretary Steven Mnuchin singled out China and said "Treasury will continue its enhanced bilateral engagement with China regarding exchange rate issues, given that the RMB has fallen against the dollar by eight percent over the last year in the context of an extremely large and widening bilateral trade surplus."

US Treasury also estimated that "direct intervention by the People's Bank of China in the last year has been limited." But it surged China to "take the necessary steps to avoid a persistently weak currency". Also, it urged China to aggressively address market-distorting forces, including subsidies and state-owned enterprises, enhance social safety nets to support greater household consumption growth, and rebalance the economy away from investment.

EU to decide next Commission and ECB Presidents in June

EU28 leaders agreed to have swift process on choosing the next European Commission and ECB Presidents in a meeting overnight. The decision would be made at a June 20-21 summit. But for now, Germany and France seem to be at odds over the choices. German Chancellor Angela Merkel is standing by the center-right German lawmaker Manfred Weber to succeed Jean-Claude Juncker and Commission President. But Weber is seen as is failing to gain traction. French President Emmanuel Macron appeared to be pushing for Brexit negotiator Michel Barnier as a compromise.

Macron told reporters after the summit that "the key for me is for the people at the most sensitive positions to share our project and be the most charismatic, creative and competent possible." On the other hand, Merkel bluntly said "I am warning against telling the EU Parliament that somebody who has only made experiences in parliament is not experienced... And that somebody who has made experiences in the Commission, is experienced. We shouldn't deal with each other in this currency."

Meanwhile, at least five candidates are believed to be running to succeed Mario Draghi as ECB Presidents. Contenders include Bank of France Governor Francois Villeroy de Galhau, Finland's Olli Rehn and Erkki Liikanen, and Bundesbank President Jens Weidmann. Chances of Weidmann and de Galhau will depend on who takes the Juncker's job.

BoJ Kuroda: Best to manage inflation expectations with flexible targeting framework

In academic conference organized by BoJ, Governor Haruhiko Kuroda expressed his openness to flexible inflation targeting. Former ECB President Jean-Claude Trichet also emphasized that medium- to long-term inflation expectations are what really matter.

Kuroda said "If missing inflation comes from structural factors such as globalization and digitalization, central banks should continue examining how best to manage inflation expectations .. within the flexible inflation targeting framework." He also noted the need to expand the policy tools to fight the next downturn. "While policy makers have developed a wide range of unconventional policy tools, their effectiveness and transmission mechanisms may differ depending on financial conditions and economic structure," Kuroda said.

Trichet also said it's not necessary for central banks to target exactly the same level of inflation in a set period of time. Instead, "there is a consensus among central banks that real success is to solidly anchor inflation expectations in the medium- to long-term in line with their definition of price stability."

New Zealand ANZ business confidence improved to -32.0

New Zealand ANZ Business Confidence rose to -32.0 in May, up from -37.5. But all sectors remained deeply negative, with agriculture confidence worst at -63.9. Activity Outlook also improved to 8.5, up from 7.1. Manufacturing scored best in activity at 21.5.

ANZ noted that "how quickly the economy will bounce back is a key question. If the forward indicators start to suggest that the Reserve Bank's relatively sharp V-shaped recovery is overly optimistic, it will be game on for further OCR cuts this year."

Looking ahead, BoC expected to stand pat

Canadian Dollar is trading mixed as markets await BoC rate decision. BoC is widely expected to keep policy rate unchanged at 1.75%. At last meeting in April, BoC removed chance of rate hike in the near- to medium- term. The central bank also downgraded GDP growth forecast, and lowered the range of neutral rate.

Economic data released since then showed not special deterioration. Headline CPI accelerated to 2.0% yoy but BoC's preferred gauges of inflation – trimmed CPI, median CPI and common CPI – either eased or stayed unchanged, giving an average reading of +1.9%, down slightly from March's +1.97%. Job market grew strongly by 106.5k. GDP contracted -0.1% mom in February but 0.3% mom rebound is expected in March. This would probably translate to an annualized growth of 0.7% qoq in 1Q19.

BoC Governor Stephen Poloz said recently that , "the natural tendency is for interest rates to still go up a bit". Though, that depends on whether the slowdown is temporary. Though, Poloz is uncertain about the size and timing of the rate hike. Overall, we're not expecting any drastic change with today's announcement.

Here are some suggested readings on BoC:

• BOC to Avoid Hinting Rate Hike Despite Improvement in Economic Data
• Will the BoC Strike a More Confident Tone at its May Meeting?
• Forward Guidance: International Trade Tensions Unlikely to Sway the Bank of Canada Rate Decision

On the data front, Swiss will release KOF economic barometer. Germany will release unemployment.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 121.80; (P) 122.26; (R1) 122.51; More....

EUR/JPY drops to as low as 121.79 today. Break of 122.08 support indicates resumption of whole fall from 127.50. Intraday bias is back on the downside. Current fall should target a test on 118.62 low next. On the upside, break of 123.73 resistance is needed to signal short term bottoming. Otherwise, outlook will remain bearish in case of recovery.

In the bigger picture, current development argues that rebound from 118.62 is merely a correction and has completed at 127.50. EUR/JPY is staying in long term falling channel from 137.49 (2018 high). Decisive break of 118.62 will confirm resumption of this medium term fall and target 109.20 low. For now, this will be the favored case as long as 125.23 resistance holds.

Economic Indicators Update

The US dollar has slipped back towards the worst trading levels of the week against the Japanese yen currency due to recessionary fears coming from the US bond market. USDJPY bulls have also been unable to move price above the 109.60 level placing the emphasis back towards the downside. The four-hour time frame chart continues to highlight that a break below the 109.00 level will trigger heavy technical selling.

The USDJPY pair is heavily bearish while trading below the 109.60 level, key support is found at the 109.00 and 108.40 levels.

If the USDJPY pair trades above the 109.60 level, key intraday resistance remains at the 109.80 and 110.00 levels.

The euro currency is under pressure against the US dollar on Wednesday after the pair failed to find buying interest above the pivotal 1.1190 level. A bearish head and shoulders pattern is now evident across the one-hour time frame, with the EURUSD pair slipping towards neckline support. Key technical support for EURUSD below the 1.1165 level is now found at the 1.1130 level.

The EURUSD pair is heavily bearish while trading below the 1.1165 level, key technical support is now found at the 1.1130 and 1.1110 levels.

If the EURUSD pair trades above the 1.1165 level, key technical resistance is found at the 1.1190 and 1.1235 levels.

Ethereum retains its bullish short-term bias after the second largest cryptocurrency by market capitalization traded to a new 2019 trading high earlier this week. The $300.00 level may still come into focus this month, although the $325.00 resistance level is the likely target for ETHUSD bulls. A sustained loss of the $260.00 support level may provoke a further technical test of the $245.00 support level.

The ETHUSD pair is intraday bullish while trading above the $260.00 level, key resistance is found at the $300.00 and $325.00 levels.

If the ETHUSD pair trades below the $260.00 level, key support is found at the $245.00 and $220.00 levels.

The US dollar index gained slightly even as investors placed their bets that the Federal Reserve will cut interest rates two times this year. This probability rose above 40% based on future prices. Previously, futures were pointing to one rate cut, an idea that the Fed has rejected. Concerns over the growth outlook have been affecting the bond market, which has led to lower borrowing costs for the US government as demand increases. Yesterday, the ten-year treasury yield fell by 6 basis points to 2.26%, which was the lowest level since September 2017. The treasury yield moves inversely to the price. Part of the reason for the change in tone is the trade war, which restarted two weeks ago.

In Asia, stocks continued to decline as investors sought the relative safety of havens like treasury bonds. This was as traders feared that the impacts of the trade war would be much worse than earlier anticipated. In Japan, Topix declined by 1.1% while Australia’s ASX 200 declined by 0.8%. In Hong Kong, the Hang Seng declined by 0.5%. The indices took a cue from the US where the S&P 500 declined by 0.8%. In a statement, the Chinese planning body threatened to use rare earths exports as leverage in the trade war. China dominates the rare earths industry, which is a group of 17 metals used in technology applications.

Traders will continue to watch out for the euro, two days after the recent European elections. Today, France will release the CPI data. Germany will release the employment data, with the unemployment rate expected to remain unchanged at 4.9%. Traders will continue to watch out for the debate on the next EU leaders. They will also focus on the Bank of Canada, which is expected to leave rates unchanged at 1.75%.

EUR/USD

The EUR/USD pair declined to a low of 1.1165. This was lower than this week’s high of 1.1215. On the chart below, the price is along the 38.2% Fibonacci Retracement level. The price is also slightly below the 25-day and 50-day moving averages while the Relative Vigor Index (RVI) is rising. The pair will likely remain along these levels as traders continue to monitor the events in Europe.

S&P 500

After months of gains, the S&P 500 pair continued to decline as traders worried about the impacts of a trade war. The index ended the day at $2795, which was the lowest level since March 27. On the four-hour chart, the index is trading lower than the 25-day and 50-day moving averages. The 14-day relative strength index (RSI) has reached a low of 30. The price is along the lower line of the Bollinger Bands. It is likely that the index will continue declining, as the trade war issue continues.

USD/CAD

In the past few weeks, the USD/CAD pair has been moving upwards. The pair is now trading at 1.3483, which is closer to the important resistance level of 1.3520. On the daily chart below, the price is also above the important resistance lines. The price is also slightly above the 25-day and 50-day moving averages, while the RSI has been relatively unmoved. The pair could break past the current trend today after the BOC delivers its interest rates decision.

The USD/JPY is probably building one more bearish swing in the wave 2 (purple) correction. Eventually price is expected to start an uptrend once the bearish waves Y (purple/pink) are completed. For the moment, price is expected to make at least one more lower as part of a wave A (blue) or C.

The USD/JPY seems to have completed a bullish ABC (orange) pattern within the wave 4 (green) correction at the 23.6% Fibonacci retracement level of wave 4 vs 3. Now a bearish breakout below the support trend line (blue) could take place but a failure of price break below it could indicate a deeper pullback to the 38.2% Fib. The main target are the Fibonacci levels of wave 5 vs 1+3.

Canadian Dollar is trading mixed as markets await BoC rate decision. BoC is widely expected to keep policy rate unchanged at 1.75%. At last meeting in April, BoC removed chance of rate hike in the near- to medium- term. The central bank also downgraded GDP growth forecast, and lowered the range of neutral rate.

Economic data released since then showed not special deterioration. Headline CPI accelerated to 2.0% yoy but BoC's preferred gauges of inflation – trimmed CPI, median CPI and common CPI – either eased or stayed unchanged, giving an average reading of +1.9%, down slightly from March's +1.97%. Job market grew strongly by 106.5k. GDP contracted -0.1% mom in February but 0.3% mom rebound is expected in March. This would probably translate to an annualized growth of 0.7% qoq in 1Q19.

BoC Governor Stephen Poloz said recently that , "the natural tendency is for interest rates to still go up a bit". Though, that depends on whether the slowdown is temporary. Though, Poloz is uncertain about the size and timing of the rate hike. Overall, we're not expecting any drastic change with today's announcement.

Here are some suggested readings on BoC:

• BOC to Avoid Hinting Rate Hike Despite Improvement in Economic Data
• Will the BoC Strike a More Confident Tone at its May Meeting?
• Forward Guidance: International Trade Tensions Unlikely to Sway the Bank of Canada Rate Decision

General Trend:

• Trade and bond yields drive sector movements in Asia
• Asian financials trade generally weaker as bond yields decline
• Brokerage and electronics firms weigh on the Nikkei
• Trade-related concerns continue to weigh on Japanese and South Korean chipmakers
• Chinese mobile chipmaker Sanan Optoelectronics rises over 1%
• Chinese rare earth firms gain, continued press speculation that China could use rare earth exports as trade weapon
• China PBoC continues to step up cash injections after recent bank takeover; Chinese gov’t bond yields decline
• China interbank market and NCDs remain in focus after takeover of Baoshang Bank
• More analysts see risk of below 1% RBA cash rate; Aussie 10-year yield hits record low and moves below RBA’s 1.50% cash rate
• US Treasury Semiannual Currency Report: Declines to name any country as manipulator; adds Italy, Ireland, Malaysia and Vietnam to watch list; Removes India and Switzerland from watch list
• US Treasury also lowered 2 thresholds used to designate FX manipulators.
• Korean Won (KRW) declines amid equity outflows, Bank of Korea rate decision seen on Friday
• Brent Crude Futures decline as China oil product apparent consumption dropped in April
• Huawei said its situation will not delay 5G rollout in China

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened -0.1%
• (NZ) New Zealand Central Bank (RBNZ) Financial Stability Report: Financial system remains resilient to broad range of economic risks, imperative to improve NZ financial system resilience while conditions are conductive
• (NZ) Reserve Bank of New Zealand (RBNZ) Dep Gov Bascand: Banks are passing on about 150bps of recent rate cut, still working its way through the economy
• (NZ) New Zealand Central Bank (RBNZ) Gov Orr: Open minded on any parameter of capital review
• TLS.AU Raises FY19 restructuring costs to A$800M (prior A$600M); to record impairment and writedown value of legacy assets by ~A$500M; to reduce headcount by 6,000 by end of FY19
• (AU) Australia sells A$3.0B v A$3.0B indicated in new 1.50% June 2031 bonds, avg yield 1.6073%, bid to cover 3.29x
• (NZ) New Zealand May ANZ Business Confidence: -32.0 v -37.5 prior; Activity Outlook: 8.5 v 7.1 prior

Japan

• Nikkei 225 opened -1.0%
• TM Expected to make investment of ¥50B in Didi Chuxing, the two companies will also create car leasing jv - Japanese Press (later says has no comment right now)
• (JP) Bank of Japan (BOJ) Gov Kuroda: Continued low rates can change risk taking behavior of financial institutions, affect financial stability; no macro prudential tool kit is perfect
• (JP) Japan Cabinet Secretary Suga: Unthinkable to call an arbitrary election, has never mentioned dissolving parliament
• (JP) Former ECB chief Trichet: Nobody can say BOJ isn't doing enough and did not do enough in monetary policy with its bold and audacious decisions

Korea

• Kospi opened -0.1%
• (KR) South Korea Jun Business Manufacturing Survey: 75 v 77 prior; Non-Manufacturing Survey: 72 v 77 prior
• 005380.KR Hyundai Kia Apr YTD combined sales 396.8K vehicles, +3.7% y/y; Hyundai Kia Apr YTD combined China sales 286.3K vehicles, -18.0% y/y

China/Hong Kong

• Hang Seng opened -0.6%; Shanghai Composite opened -0.5%
• (CN) China PBoC Open Market Operation (OMO): Injects CNY270B in 7-day reverse repos v CNY150B injected prior; Net: CNY250B injection v CNY70B prior (largest injection since Jan 17)
• (CN) China PBoC sets yuan reference rate: 6.8988 v 6.8973 prior
• (CN) China National Development and Reform Commission (NDRC) Spokesperson: China will give priority to domestic needs for rare earth, not ruling out using rare earths in trade dispute with US – SCMP
• (CN) China Banking and Insurance Regulatory Commission (CBIRC) chairman Guo Shuqing: China has sound economical fundamentals which mean yuan will not see continuous depreciation and speculative short yuan positions will surely lead to a huge loss – Xinhua
• (CN) China PBOC Gov Yi Gang: Confident to keep CNY currency (Yuan) stable at reasonable and equilibrium level; Benchmark Deposit Rate will continue to play an important role in promoting market-based interest rate reform - financial press
• HUAWEI.CN Files for motion for summary judgement asking US Federal Court in Texas to declare 2019 National Defense Authorization Act unconstitutional

Other Asia

• (MY ) Malaysia Central Bank (BNM): Sees no economic impact from being included on US Treasury's FX watchlist; Malaysia does not practice unfair currency practices

North America

• (US) TREASURY DEPARTMENT SEMI-ANNUAL CURRENCY REPORT: NO MAJOR TRADING PARTNER A CURRENCY MANIPULATOR; DOES NOT NAME CHINA A MANIPULATOR
• SPDR Gold Trust holdings -0.2% to 737.3 metric tons

Europe

• (UK) Govt spokesperson: No deal Brexit has remained the legal default; have the responsibility to prepare for it
• (UK) Labour's Corbyn (opposition) said to be ready to back a second Brexit referendum, may announce it very soon - UK press
• (UK) May BRC Shop Price Index: Y/Y 0.8% v 0.4% prior

Levels as of 1:20 ET

• Nikkei 225, -1.3%%, ASX 200 -0.7%, Hang Seng -0.3%; Shanghai Composite -0.1%; Kospi -1.3%
• Equity Futures: S&P500 -0.3%; Nasdaq100 -0.5%, Dax -0.3%; FTSE100 -0.5%
• EUR 1.1174-1.1159 ; JPY 109.43-109.14 ; AUD 0.6931-0.6919 ;NZD 0.6553-0.6540
• Gold +0.2% at $1,279/oz; Crude Oil -1.1% at $58.50/brl; Copper -0.4% at $2.685/lb