- Rates: Looking for clues from the ECB
US investors return after the long weekend, but the US eco calendar is razor-thin. EMU investors look for signs of improvement in the forward-looking German ZEW expectations index and for hints on possible future policy changes in speeches by ECB de Guindos and Praet. Current very dovish market positioning probably limits market moving potential.
- Currencies: Sentiment data (ZEW) to ease euro downside pressure?
EUR/USD tried to extend gains beyond 1.13, but the move had no strong momentum yesterday. Today and in the coming days, EMU sentiment indicators will give a new update on the health of the EMU economy. The jury is still out, but better data might give EUR/USD some downside protection. BoJ’s Kuroda signals the banks stays alert on yen strength
The Sunrise Headlines
- US equity markets were closed yesterday for US Presidents’ Day, but reopen today. Asian equity markets are trading mixed this morning with Chinese indices underperforming.
- EU Commission president Juncker is confident US president Trump will keep his promise of not imposing car tariffs for the time being. Otherwise, he threatened to retaliate immediately with less purchases of soy and liquid gas.
- Sixteen US states, led by California, have filed a federal lawsuit challenging President Trump’s national-emergency declaration to finance the wall on the Mexican border, setting the stage for more bickering in US Congress.
- UK Attorney General Cox proposed amendments to the delicate Irish border backstop. Brexit Secretary Barclay will hold more talks with EU chief negotiator Barnier this week, while UK manufacturers warn of ‘catastrophic’ no-deal Brexit.
- Bank of Japan governor Haruhiko Kuroda, speaking to parliament, said the bank would have to consider additional monetary stimulus if a stronger Japanese yen affects Japan’s inflation and economy too much.
- ECB chief economist Peter Praet showed concern over the economic slowdown, adding to the dovish shift of the ECB lately. He said the bank could delay to raise interest rates as a first response against a deeper downturn.
- Today’s eco calendar contains the NAHB Housing Market Index in the US and labour data for the UK. Germany prints the ZEW investor confidence gauge, while Sweden releases inflation data. ECB de Guindos and Praet speak
Currencies: Sentiment Data (ZEW) To Ease Euro Downside Pressure?
Better sentiment data to support EUR/USD?
EUR/USD rebounded further off Friday’s correction low yesterday as mixed US data last week tempered the USD positive bias. There were no important data and US markets were closed (Presidents’ Day). Later in the session, soft ECB comments also capped the upside of the euro. EUR/USD settled in the lower part of the 1.13 big figure for most of the day to close at 1.1311. USD/JPY gained a few ticks as risk sentiment remained constructive and finished the day at 110.62.
Asian equities are trading mixed. Markets are looking for concrete results from the China-US trade talks. At the same time, investors are keen to know the content of the US security report on auto tariffs and what conclusion president Trump will draw. EUR/USD is losing a few ticks, returning to the 1.13 area. BOJ’s Kuroda indicated that the BOJ could ease policy further if needed. It can also be used if yen strength would affect Japan’s inflation or the economy. USD/JPY reversed an earlier decline and trades again in the 110.65 area. The Aussie dollar (AUD/USD 0.7115 area) eased as the RBA Minutes showed the bank is closely watching the impact of declining house prices on the economy. US markets reopen today, but the US eco calendar is thin. In Europe, ZEW investor sentiment is expected to ease from 27.6 to 21.0. Other EMU sentiment indicators including the PMI’s on Thursday and the IFO on Friday are more important to assess the health of the economy. Still, markets are keen to see whether recent EMU downturn slows or accelerates. Signs of improvement might be modestly euro supportive.
At the end of last week, poor US retail sales and production data capped the USD rebound. We started the week with a cautious/rather balanced EUR/USD bias. An improvement in the global trade picture and better EMU data are needed to improve sentiment on EUR/USD. There are hopeful signs on trade, but the jury is still out. EUR/USD 1.1216 marks the Nov low. EUR/USD 1.1287 is 61% retracement (2016 low/2018 top). The EUR/USD downside looks a bit more solid versus last week.
EUR/GBP hovered in a tight range in the mid 0.87 area yesterday. There was plenty of analysis on 7 Labour MP’s leaving the party, but the direct consequences for Brexit were unclear. Today, UK labour market data are expected solid. Additional wage rises and solid employment growth would reinforce the BOE’s case to raise the policy rate in case a disorderly Brexit is avoided. However, any positive reaction of sterling will be guarded as Brexit uncertainty still reigns.
USD/JPY: BoJ’s Kuroda signals the BOJ stays alert on potential excessive