FX News Today
European Fixed Income Outlook: 10-year Bund yields jumped higher in opening trade, in catching up with the jump in 10-year Treasury yields late Wednesday following Trump’s agreement with Juncker on trade talks that seemed to suspend the threat of auto-tariffs for now and sparked hopes that a trade war can be avoided. As of 06:22 AM GMT the 10-year Bund yield is up 2.2 bp at 0.414%, and while Treasury yields have pulled back from yesterday’s highs and are down -1.1 bp on the day, 10-year JGB yields are up 1.5 bp at 0.079%. Peripheral bonds are outperforming and European stock futures are rallying, led by a nearly 1.3% rise in GER30 futures. In theory a de-escalation of trade tensions would add to the arguments of the hawks at the ECB council meeting, which adds to pressure on Bunds, but China’s example has shown that the apparent truce may not last long and Draghi is likely to remain cautious.
FX Update: The Yen has been trading firmer while the Dollar has been steady against most currencies. EURUSD edged out a fresh 4-day high of 1.1743 earlier in Asia, marginally extending the gain seen after the unexpectedly cordial meeting between President Trump and the EU’s Junker. USDJPY has remained heavy as the 10-year JGB yield lifted to a 1-year high of 0.89% amid prevailing speculation that BoJ could scale back its stimulus program, despite concurrent expectations for the central bank to trim inflation forecasts at its policy meeting next week. USDJPY printed a 17-day low of 110.66 late yesterday and has since ebbed back towards 110.70 after a brief rebound stalled near 111.00. The mood in equity markets has turned more negative after Wall Street was boosted in the late session yesterday as the US agreed to hold off on car tariffs. Some corporate earnings and/or circumspect corporate guidance, including from Facebook, General Motors, Ford and Fiat Chrysler, have soured sentiment somewhat, along with what some are calling “Trump fatigue.”
Charts of the Day
Main Macro Events Today
- ECB Refinancing Rate – Expectations – No major changes are expected to ECB’s central message from June at today’s policy meeting. Net asset purchases remain on course to be phased out by the end of the year, but Draghi may be under pressure to clarify the commitment to keep rates steady “through the summer” of 2019. The question is whether that excludes a move at the September 2019 meeting, as one ECB member seemed to imply.
- ECB Press Conference
- US Durable Goods and Jobless Claims – Expectations – The Durable Goods orders are estimated rising 1.2% in June, after a 0.4% decline in May, and shipments should increase 1.5% with inventories up 0.3%. Initial Jobless claims are estimated to rebound 10k to 217k in the week ended July 21, following a 207k reading in the week of July 14 — a new 48-year low.
- Tokyo Core CPI – Expectations – July Tokyo CPI is seen at an unchanged 0.6% y/y overall, and a steady 0.7% y/y clip on a core basis.
Support and Resistance Levels
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Andria Pichidi
Market Analyst
HotForex
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