USD doesn’t profit as US growth is also in doubt

The dollar and most other major currencies entered calmer waters yesterday as Friday's global risk-off repositioning petered out. On Friday, a sharp decline of EMU manufacturing PMI's raised fears on global growth. Yesterday's data were a bit more growth- and euro-friendly. German IFO business climate recovered more than expected. IFO evidently didn't remove uncertainty on growth but gave some comfort. The equity decline slowed and EUR/USD succeeded a modest intraday rebound to close the day at 1.1312 (from 1.1302). Interestingly, US-German yield differentials narrowed further. USD/JPY hovered up and down around the 110 pivot to close the session little changed at 109.97. This morning, most Asian equity indices are rebounding with China underperforming. US yields show tentative signs of bottoming after recent sharp decline. We didn't see any specific high-profile story that triggered this morning's improvement in investor sentiment. The dollar profits slightly from tentative higher US yields. USD/JPY is trading in 110.15 area. EUR/USD is drifting back toward the 1.13 level.

Today, EMU calendar contains German consumer confidence and French business confidence. These data usually have little impact on global markets/FX trading, but currently markets might react to all pointers on growth. In the US, the housing starts and permits, the Richmond Fed manufacturing index and consumer confidence will be released. Maybe there are downside risks for the Richmond Fed and for consumer confidence after last month's rebound. As market fears mainly concern global growth, the reaction will be mainly visible in risky assets, rather than in individual currencies. That said, after last week's decline, further euro losses might be more limited if there is no additional negative news from the region. The picture of EUR/JPY remains fragile, but there is still some room ahead of the key 123.40/80 support area. This might give the single currency some comfort, for now. In a longer-term perspective, we maintain the view that the EUR/USD 1.12 range bottom will hold, even as downside risks have increased.

EUR/GBP showed no clear trend yesterday and hovered in the upper half of the 0.85 big figure even as the political chaos in the UK only became bigger. UK PM May didn't bring her deal back to Parliament. At the same time, MP's took control of the Brexit process. The outcome of this process remains highly uncertain. Sterling investors still see a decent chance on a rather soft Brexit, preventing further sterling losses. For now, we avoid sterling long exposure as long as the binary risk remains as high as it is now.

Download The Full Sunrise Market Commentary Currencies