Markets

  • The clarifying statement by the NY Fed on early Friday to downplay William's previous comments (of aggressive easing) triggered a morning correction in core bonds. The (core) bond market treaded water afterwards. The U. of Michigan consumer confidence was too close to expectations. Fed's Rosengren (voter) was the last governor to speech (Friday evening) before the Fed blackout period kicks in. He said that he doesn't want to ease policy if the economy is doing "perfectly well". Rosengren is a known hawk, which might explain the limited impact of his comments on bonds. US yields rose by 6.4 bps (2-yr) to 3.1 bps (10-yr) on a daily basis. The German yield curve shifted south with yields changing about -1.5 bps across the curve. Peripheral spreads widened with Italy (-6 bps) underperforming on rumours that Lega's Salvini might trigger snap elections. We'll experience a classic Summer trading session today with zero data to inspire traders. If anything, the moderate risk-off climate due to rising geopolitical tensions (Iran) might cause some sentiment driven core bond buying. We don't expect a strong correction lower in yields however, with key central bank policy meetings looming. A soft expected ECB on Thursday might cause some outperformance of the Bund over Treasuries in the run up to Draghi's final performance.

  • The dollar rebounded as investors scaled back expectations for bold Fed easing on Friday after the NY Fed clarified that (dovish) comments from Fed Williams on Thursday shouldn't be interpreted as guidance for the outcome of the July Fed meeting. Uncertainty on the fate of the Italian government and tensions around Iran maybe were tentative euro negative/USD positive factors too. EUR/USD closed the day at 1.1221. USD/JPY finished at 107.71.
    At the start of the week, the dollar remains well bid
    as some kind of market consensus is building that the Fed will probably cut rates by a cautious 25 bp next week. The eco calendar in the US and Europe is very thin today. FX traders will count down to the ECB policy decision on Thursday. The eco calendar is backloaded with EMU PMI's (Wednesday), the Ifo confidence (Thursday) and Q2 US GDP on Friday. (Geo)political topics (Italy, new UK PM, Iran) are a wildcard for (FX) trading. The risks both for the eco headlines and the impact of the political topic might be slightly USD supportive and/or euro negative. EUR/USD is nearing the bottom of recent 1.14/1.1181 consolidation pattern. A downside test looks likely. A break would open the door for the a retest of the key 1.11 support area.

  • EUR/GBP declined slightly further Friday, cautiously extending Thursday's sterling rebound. EUR/GBP closed at 0.8974. Cable lost some ground to close at 1.2502, but this move was mainly USD strength. Sterling investors await tomorrow's outcome of the vote within the conservative party on the successor of PM Theresa May. Markets will be eager to see the first steps of the new PM to unlock the Brexit stalemate. However, for now, it is difficult to seen any progress in the very short-term. In this context, a sustained sterling rebound will probably remain difficult. We expect EUR/GBP to hold close to the 0.90 barrier until some significant news on Brexit kicks in.

 

News Headlines

  • Iran captured a British oil tanker Friday, in response to Britain's seizure of an Irian vessel earlier this month. The move stokes fears of a potential oil supply disruption in the Strait of Hormuz. Brent oil prices rise more than 1.5% this morning to $62.5/barrel.

  • China will impose anti-dumping duties on some steel products coming from the EU, Japan, South Korea and Indonesia, it's Ministry of Commerce stated on Monday. The tariffs will range from 18.1% to 103.1%.

  • Japanese PM Shinzo Abe and his ruling coalition as expected won Sunday's upper house election for a sixth time. He fell short of a supermajority needed for a constitutional reform however. The yen weakened slightly, close to USD/JPY 108.

Download The Full Sunrise Market Commentary

This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD surges above 1.1100 as Trump announces steps against China

EUR/USD is trading above 1.1100, up on the day. President Trump said he orders companies to search Chinese imports for drugs. Earlier he criticized Powell's lack of action. 

EUR/USD News

GBP/USD jumps above 1.2250 on USD weakness

GBP/USD is trading close to the monthly highs above 1.2250 as the US dollar falls following Powell's hint of cutting rates and Trump's angry response. 

GBP/USD News

USD/JPY plummets to ten-day lows below 106 as Trump goes berserk on Twitter

The USD/JPY came under strong selling pressure in the last hour and erased nearly 100 pips as US President Donald Trump's latest rant on Twitter forced investors to seek refuge and ramped up the demand for safe-haven JPY. 

USD/JPY News

Powell powerless against Trump's trade wars – US braces for recession, USD set to move

"The most powerful central banker in the world" – is how we and others characterize Fed Chair Jerome Powell. While that may be true – monetary policy is reaching its limits – especially in the face of a trade war.

Read more

Gold gains more than $30, eyes 2019 highs on Trump’s tweet

Gold continues to rise sharply amid concerns about the impact of the escalation in the US-China trade war. The demand for safe-haven assets emerged over the last hours, leading to a rally in the yellow metal. 

Gold News

Majors

Cryptocurrencies

Signatures