Currencies: Dollar Holing (Relatively) Strong Despite Mixed US Data

Fundamental analysis of Forex market
  • Rates: Back loaded eco/event calendar
    Asian stock markets profit this morning from rumours that China and the US are in the final stage of completing a trade deal. Both parties are reportedly ready to drop tariffs. Risk sentiment will cause intraday gyrations in a low-volume trading session on bond markets. The eco/event calendar is backloaded with EMU PMI’s, ECB meeting, US ISM, ADP and payrolls.
  • Currencies: Dollar holing (relatively) strong despite mixed US data
    EUR/USD failed to regain the 1.14 mark on Friday even as the US manufacturing ISM disappointed. At the start of this week, the picture for EUR/USD trading looks more balanced. Further gains in the 1.12/1.15 range will probably need more positive news from the EMU (or ECB) or softer US data. The recent sterling rally is falling prey to (modest) profit taking

The Sunrise Headlines

  • US equity markets gained ground on Friday with technology shares outperforming (Nasdaq +0.83%). Asian equities are largely trading higher this morning as the US and China seem close to a trade deal.
  • The US and China are said to be close to a trade deal. Most or all US tariffs could be lifted as Beijing made pledges on structural economic changes. President’s Trump and Xi Jinping are said to hold a summit at the end of March.
  • US President Trump said the US dollar is too strong, as it is prohibitive for doing business with other nations. He also blamed Federal Reserve chief Powell for raising interest rates and quantitative tightening.
  • Support for UK PM May’s Brexit deal is growing as key Tories and pro-Brexit hardliners signal they could swing behind the deal in exchange for certain conditions. UK Parliament will vote on the deal next Tuesday.
  • The Basel Committee on Banking Supervision has called for external checks on the riskiness of banks’ loans. The global rule-setter for financial regulations wants to minimise the scope for errors or cheating in risk calculations.
  • Rating agency Moody’s has raised Greece’s sovereign credit rating by two levels from B3 to B1 with a stable outlook. Moody’s states that the ongoing reform efforts are starting to bear fruit in the economy.
  • Today’s US eco calendar is only contains second tier eco data with EMU producer price inflation, the UK construction PMI and US construction spending.

Currencies: Dollar Holing (Relatively) Strong Despite Mixed US Data

USD remains well bid despite mediocre US data.

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EMU data printed mixed to slightly stronger than expected on Friday, but with little direct impact on EUR/USD trading. The dollar traded with a tentative soft bias early in US dealings. Later, the manufacturing ISM missed expectations and the details weren’t convincing. Still, USD losses were temporary and modest. EUR/USD revisited the 1.14 area, but soon turned back south. A rebound of US equities and a rise in US yields in the end even tilted the balance back in favour of the dollar. EUR/USD closed marginally lower at 1.1365. USD/JPY rallied further to finish at 111.89.

This morning, sentiment on Asian equity markets is risk-on. Optimism is fuelled by press reports that the US and China are close to a trade deal. In this deal, most of the US import tariffs on Chinese goods might be removed. The yuan gains modest ground, EUR/USD and USD/JPY show no clear trend. USD/JPY (high 111 area) is holding near recent top. EUR/USD hovers in the 1.1360 area. In a speech for a conservative party audience, US president Trump again blamed Fed’s Powell for keeping yields and the dollar too strong.

There are few important eco data today. Later this week, USD traders will look out both for European and US data. The latter include the non-manufacturing ISM (tomorrow), ADP (Wednesday) and the payrolls (Friday). Guidance from the ECB policy meeting on Thursday might be important for the next directional move of the euro.

Over the previous two weeks, EUR/USD started a gradual rebound as EMU data showed signs of a tentative bottoming. The ECB also indicated that there might still be room to start some kind of policy normalisation. This narrative supported EUR/USD. End last week, the EUR/USD rise did run into resistance on (some) constructive US data. At the start of this week, the picture for EUR/USD is balanced. The 1.14 area looks quite a solid resistance. More EUR/USD gains in the 1.12/15 range are possible, but such a move probably needs more good news from Europe or poor US data (and a halt of recent rise in US yields). For now, we see no immediate trigger for such a break. So, some consolidation on recent EUR/USD gains might be on the cards.

Profit taking on recent sterling rally continued last Friday. The risk of a no-deal Brexit declined of late but this development was apparently discounted, causing ST players to take some profit on sterling long. Brexit headlines might still be a bit less dominant for sterling trading than was the case of late. If markets grow more convinced on an orderly Brexit, UK data and the chances for a BoE rate hike might become more important for sterling. Until data bring more clarity, sterling might maintain recent gains. The profit taking move shouldn’t go that far.

EUR/USD: rally running into resistance as (some) US data restore balance

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