USD gains a few ticks on (slightly) higher US yields
|Global sentiment stayed positive on Friday, resulting in smooth price action in the major FX cross rates. The disconnect between (equity) markets and the data continued. Mounting evidence of an unprecedented steep economic decline as illustrated by a loss of 20.5 mln jobs in the US in April, hardly affected markets. On the contrary; US yields regained a few bp after the report, slightly supporting USD/JPY (close 106.65). Still, price moves in the major USD crosses were confined to well-known ranges. EUR/USD hovered in the 1.08 figure closing little changed at 1.0839. Moody's left the Italian Baa3 rating unchanged.
This morning, Asian equities join WS's rally on Friday. Mainland China indices underperform even as the PBOC indicated to keep a supportive monetary policy in place in its quarterly report. The yuan loses a few ticks (USD/CNY 7.0825). USD/JPY is trading higher after a tentative bottoming last week, testing the 107 area. The Aussie is holding on the recent gains, but the 0.6550/70 area proves to be a tough resistance.
Today's calendar thin. Later this week, US bond supply might be a topic for the bond markets with some potential spill-over effects to FX. Will the dollar profit (albeit modestly) from a (limited) rise in US yields? In Europe, Moody's review of the Italian credit rate is out of the way, but the issue of German court ruling on the ECB QE stays in the headlines. During the weekend, the ECB and the European Commission pushed back on the ruling and indicated that rulings on ECB policy should be done at a European level. Even so, the debate illustrates to complexity of the EU institutional framework which is no help in a time of crisis. Last week, EUR/USD dropped below 1.08 after the German court ruling, but the 1.0727 correction low was left intact. Institutional issues probably will continue cap any sustained euro rebound. We expect EUR/USD to hold in the lower part of the 1.0727/1.1018 trading range for now.
EUR/GBP hovered sideways in the mid 0.87 area on Friday. During the weekend, UK PM Johnson announced ‘first careful steps' to easing the lockdown rules. Details will be given later today. At least for now, sterling isn't impressed. The UK isn't a frontrunner on the path to a restart of the economy. Brexit also lingers with EU-UK talks still in a stalemate. We expect the EUR/GBP 0.8680/0.87 support to hold.
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