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Intermarket:
- SP Futures 3112 (-0.16%)
- EUSTXX 3259 (-0.06%)
- Crude Oil 36.53 (-2.12%)
- US 10YR 0.76
- EurUsd 1.1219 (-0.12%)
- UsdJpy 109.08 (+0.16%)
- DAX 12501 (+0.20%)
After another strong session for risk yesterday, markets have cooled off during Asia, likely on profit taking ahead of the ECB and NFP. In the absence of any escalation of tensions between the US and China, it seems that central bank easing is doing the job and inflating asset prices and forcing the bears to throw in the towel.
Enter the ECB. The market has likely priced in an increase of about 500 billion in the PEPP for today. What will be the focus?
- an increase in the tiering multiplier (would be bullish Eur);
- revealing that PEPP purchases will reflect capital keys over the medium term;
- increase the size of supranational debt purchases from 10% in the APP;
- Lagarde’s inflation outlook;
- expectations on the TLTRO3 operation later this month;
- comments related to the EU Recovery Instrument and ECB’s role via the PEPP/PSPP.
So there are a lot of technicalities to look out for, and we’ll try to bring them to you in a timely fashion on our Twitter feed. Ahead of the ECB, markets showed a tepid reaction to the German coalition deal on a EUR130bn stimulus package.
Some weakness in the Pound. The only headline was in the The Times: former PM May accused PM Johnson of bringing in measures that would “close Britain off from the rest of the world”. May is joined by a string of Tory MPs who described the measures as disproportionate and economically damaging.
Matters that Matter:
- China is to allow more foreign airlines to resume inbound flights
- Mattis: Condemns Trump for dividing nation, misusing military
- Lawmaker Smith queries Esper on troops movement into DC area; if regiment was issued rules for use of force
- German coalition parties agree 130 bln euro stimulus package
- German Fin Min Scholz: Not all the EUR120bn in funds to be financed by new debt
- KCNA: North Korea threatens to scrap military pact over leaflets
- Trump not considering sanctions on China’s Xi over Hong Kong
- New Zealand May ANZ Commodity Price fell 0.1% from -1.1%
- Australia April Trade Surplus AUD8.8bn from revised +AUD10.446bn
- Australia April Exports M/M fell 11% from revised +14% (prev +15%)
- Australia April Imports M/M fell 10% from revised -3% (prev -4%)
- Australia April Retail Sales -17.7% from +8.5%
MAJORS 1-DAY VIEW:
USDJPY
• Prices are trading above key daily averages, but as the DXY remains under pressure and profit taking enters the market, the potential for reversals is high. However, with no contrarian signals, teh stance remains to buy dips.
• Opex: 820 mln 108.25-70, more below
• Offers at 109.00, more touted at 109.05, 109.20
EURUSD
• Intraday sentiment is overstretched at 11 week highs and some early signs of divergence are showing up. For this reason, the outlook for Thursday is just cautiously bearish.
• Large opex contain action: 3.5 bln 1.1200-50, 875 mln 1.1170-95
• EURJPY opex also capping: 570 mln 122.35 and 122.50, plethora of downside, 117.00 calls to expire too.
• ECB in focus.
AUDUSD
• Yestday’s neutral action coming at the top of an uptick is mildly negative and it has been accompanied by some early signs of divergence. Cautiously selling rallies preferred today.
• Little impact from data but different price action today - profit taking into US payrolls?
• Liquidation of AUDNZD is capping this AUDUSD
GBPUSD
• Yesterday’s little changed close alongside further losses in Asia has weakened intraday signals and the outlook is just cautiously bearish.
• Profit-taking ahead of key risk event?
• GBP to slide if UK doesn’t seek a Brexit talks extension
FX Relative Strength Grid
Key: Week Bias up (down) if there has been a daily close above (below) prior weeks’ high (low).
%-Location is whereprice is, relative to the prior week range. Above 100% means we passed prior week high. Below 0% means we passed prior week low.
%-Change: change in %-location since yesterday at 07.00 CET.
Comment: Risk-on remained the theme into yesterday’s close with the exception of AUD - the former leader - which has lost ground and may be sending out a signal that the risk rally is (temporarily) running out of steam.
FX Relative ATR
Key: 1 Day vs 13 Day ATR. Values > 100% mean Day ATR expansion. Values < 70% mean Day ATR contraction.
Comment: Ranges are still extended and as we are also extended on a weekly basis, this suggests caution if you’re following momentum. Retracements become much more likely.