On Friday, EUR/USD initially extended the technical rebound that started on Wednesday. At that time, a test to break below the year low in the 1.13 area failed. Some positive noise on the US-China trade talks might have been a slightly euro positive, too. However, fortunes for EUR/USD changed again Friday afternoon. US payrolls were solid as expected. Later in the session, the euro suffered from press reports that the ECB was pondering the options to replace maturing TLTROs by a new source of cheap funding. EUR/USD declined came off the intraday peak in the mid 1.14 area and closed at 1.1388. USD/JPY also profited from the rise in US yields and finished the session at 113.20 (from 112.70).
This morning, investors in Asia take a defensive approach with indices across the region drifting into negative territory. There is no concrete positive news from the US-China trade talks. China's (Caixin) PMI's showed an unconvincing picture, too. The prospect of a likely further rise in US yields is no help for regional markets. The outcome of the US mid-term elections is also a source of uncertainty. The dollar is holding relatively strong. EUR/USD trades just below 1.14. USD/JPY remains well bid even as BOJ's Kuroda questioned the effectiveness of large scale monetary easing. Later today, the eco calendar in the EMU is thin. The US non-manufacturing ISM is expected to ease from 61.6 to 59.1. A relatively soft figure is possible. Any market reaction might be subdued, as markets await the outcome of the US elections. We start the week with a neutral bias on EUR/USD. The USD continues to enjoy ample interest rate support, but last week's rejected rest of the low 1.13 area/2018 low suggests that more positive news is needed to trigger further USD gains beyond important technical levels. Positive Brexit headlines might be slightly euro supportive, but we don't expect this to be a game-changer for the euro. More sideways trading in the 1.13/1.16 range might be on the cards. Within this range, a sell-on-upticks approach remains favoured.
At the end of last week (and this weekend) the news flow turned more GBP-supportive (rather hawkish BoE speak, positive Brexit headlines). EUR/GBP spiked lower at the start of Asian trading this morning, but sterling gains could not be sustained. Sentiment on sterling improved, but we assume that concrete progress is needed for sterling to strengthen beyond the EUR/GBP 0.8723/0.8696 intermediate support.
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