EUR/USD traded above 1.2050

Arne Lohmann Rasmussen Danske Bank A/S

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In the US, we get the FOMC minutes from the December meet ing and we will look for clues as to whether other members other than Charles Evans and Neel Kashkari came close to dissent ing. ISM manufacturing is also in the spot light .
In Denmark, we get FX reserves data for December. In Norway, we get the labour force survey for October but remember the more stable labour market stat ist ics from NAV is more important .
Finally, Mi fid2 is officially new regulat ion in Europe from today. It could potent ially mean less market liquidity in the next couple of days as t raders and asset managers adapt to the new regulat ions and rules in real-t ime.

Selected market news

European bond markets came under pressure on the first t rading day of the year and the yield on 10Y Bund rose 4bp to 0.46% - the highest level since October 2017. The combinat ion of generally st rong PMI data indicat ing that inflat ion eventually will pick-up and comments over t he weekend from ECB's Coeure weighed on the market . Coeure said that unless inflat ion disappoint ed t here's a " reasonable chance" t he central bank's ext ension of QE in Oct ober last for nine months could be the final extension. Especially, the lat ter weighed on periphery bond markets together with markets st ill wary ahead of the Italian March general elect ion.

The FI sell-off also comes ahead of a busy bond supply calendar in Q1 and especially here in January, where a number of syndicat ions are due and the ordinary auct ion calendar is full. Yesterday, the Irish Debt Management Office said that it has mandated six banks including Danske Bank as joint lead managers for a forthcoming new 10-year bond that – subject to market condit ions – is due to today. The Coeure comments and the recent pick-up in long-term inflat ion expectations, where the 5y5y EUR inflat ion swap is at 1.74% which is close to the highest level in a year, underline that the risk of further pressure on European FI markets here in January should not be neglected. It seems t hat t he global ‘reflat ion t rade' is once again back in focus.

The factors that pushed yields higher in the Euro zone yesterday also added to the st rength of the Euro and EUR/USD traded above 1.2050 – the highest level in three years. The cross is not only supported by EUR st rength but also by a general dollar weakness seen here in 2018. European stocks had a hard t ime following the posit ive Asian sent iment yesterday as the strong Euro weighed on sent iment . US stocks on the other hand had a st rong opening day with tech stocks taking the lead as Nasdaq rose 1.5%. In respect of financial market s preparing for t oday's Mifid2 launch Bloomberg reported that turn-over was lower than usual yesterday. We expect that any potent ial market impact on liquidity will be temporary.

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Arne Lohmann Rasmussen

Danske Bank A/S

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