FX News Today
European Fixed Income Outlook: 10-year Bund yields are down -0.9 bp at 0.41% in opening trade, as global bond markets remain supported by Draghi’s dovish tone yesterday, which was followed by a BoJ statement that left policy unchanged, but downgraded the inflation assessment. Global stock markets are trading mixed though, as the focus returns to trade risks. And for Europe, the weaker EUR may still add support to equity markets, but given that rate hike expectations had already been pushed out amid weak data releases, market reaction to the ECB’s commitment to keep rates steady through summer 2019 seems somewhat overdone. The European calendar has final inflation readings for the Eurozone as well as trade numbers for April, but after the ECB move yesterday these are unlikely to have much market impact.
FX Update: The dollar has traded broadly firmer so far today, with the ECB’s dovish-tilting guidance yesterday coupled with the BoJ lowering its prognosis on the inflation outlook (following a widely-anticipated decision to leave monetary policy unchanged) serving to emphasize the Fed’s relatively hawkish stance. EURUSD extended to a fresh 16-day low of 1.1555 in Asia trading. The pair had been trading above 1.1820 ahead of the ECB’s announcement yesterday, and the magnitude of losses are the sharpest over a day since October 26th-27th of last year. USDJPY, meanwhile, lifted to a 24-day high of 110.99. The BoJ’s downgraded CPI forecast underlines the chronic undershooting of the inflation target and points to ongoing ultra-accommodative policy — which includes pegging the 10-year JGB yield at near 0% — for the foreseeable future, certainly through to 2019. The dollar also posted gains against the dollar bloc currencies and sterling, and most other currencies, including emerging and newly-developed world currencies. Market participants will now be bracing for President Trump’s expected escalation of trade tariffs, as he will reportedly be confirming tariffs on China later today.
Charts of the Day
Main Macro Events Today
- Eurozone May HICP – Expectations – inflation is expected to be confirmed at 1.9% y/y with the final release today, up from 1.2% y/y in April. The impact of higher oil prices is partly to blame, as are higher food prices, but in the preliminary number core inflation also lifted. The headline rate is pretty much in line with the ECB’s definition of price stability and there is in fact a slight risk of an upside revision. However, with the ECB meeting out of the way, and Draghi confirming that rates won’t rise before the end of the summer 2019 the numbers are unlikely to have much market impact.
- Canada manufacturing Sales – Expectations – expected to reveal a 1.0% gain in April after the 1.4% rise in March.
- US Industrial production & UoM Consumer Sentiment – Expectations – Industrial production may rise 0.2% in May, following strong 0.7% readings in April and March and capacity utilization should edge up to 78.1% from 78.0%. Finally, the Michigan sentiment expected to be improved to 98.5 from 98.0.
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Andria Pichidi
Market Analyst
HotForex
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