The dollar retained the benefit of the doubt early in yesterday’s trading. Risk sentiment was unconvincing and some end of month repositioning probably was also still in play. The TW dollar (DXY) tested the 97.80 area and EUR/USD tested the 1.12 area. Sentiment improved later. US eco data were mixed. The Chicago PMI disappointed (36.6 vs 45 expected), but US consumer confidence beat expectations. US equities gained further momentum easing the bid for the dollar. A rebound in US yields only supported the risk-rebound of USD/JPY (close 107.93). EUR/USD in the end again showed no clear trend closing at 1.1234 (from 1.1242).
This morning, Asian indices show a mixed picture. Japan underperforms. The BOJ Q2 Tankan report confirmed that many parts of the economy are hard hit by to impact of the corona virus. (large manuf. index at -34 from -31 expected). The yen gains a few ticks (USD/JPY 107.65) but this is probably due to an overall less buoyant market sentiment. EUR/USD is losing modest ground (1.1220).
Today’s calendar contains the final EMU manufacturing PMI’s, the US ADP report and the US manufacturing ISM. It will be difficult for (FX) markets to assess the outcome of ADP (rise in private jobs expected of 2.9 mln) after last month’s deviation from the payrolls. The ISM is expected to rebound further to 49.6 (from 43.1). This looks reasonable. However, the USD reaction will probably mainly be driven by global sentiment rather than by the data. Headlines on the spreading of the pandemic in the US currently are a mixed story for the dollar.
EUR/USD settled in a ST consolidation pattern near 1.12. The picture recently turned a bit more fragile/unconvincing, but the 1.1160 support area stayed out for reach. With global sentiment turning more shaky, EUR/USD might hold near current levels, maybe drift still slightly lower, but we see no case for a sustained USD comeback either.
In technical trading, EUR/GBP reversed most of the sharp short-squeeze that pushed the pair for a test of the 0.9180 area on Monday. EUR/GBP closed at 0.9060. BoE’s Haldane sounding positive on the recovery maybe helped the reversal. The calendar is thin today. We see yesterday’s rebound of sterling mainly as a correction on oversold conditions. Close-to-negative interest rates, a fragile global sentiment and more headlines on tough Brexit negotiations might cap sustained further GBP gains. We see EUR/GBP 0.90 as rather solid support.
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