European Commission chops Germany's 2019 growth forecast in half
Summary
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USDCAD: Dollar/CAD indeed filled its Sunday opening gap yesterday and all it took was for global stock markets to calm down following Trump’s threat to raise tariffs on China this Friday. The sense we got from listening to market banter yesterday was that Trump was bluffing and that this should not be surprising knowing how he negotiates. Trade Representative Lighthizer and Treasury Secretary Mnuchin, however, affirmed after the close that Washington would indeed impose additional tariffs on Beijing this Friday, claiming that China had reneged on its commitments. This saw the S&P futures give up half of yesterday’s bounce in early Asian trade and this helped stem the selling for USDCAD temporarily. The AUDUSD rally following the dovish hold on interest rates from the Reserve Bank of Australia then appeared to be the catalyst for USDCAD to probe lower again, this time to familiar trend-line support in the 1.3420s. China’s Commerce Ministry then announced that Vice Premier Liu would indeed travel to the US this Thursday, and while this erased most of the Lighthizer/Mnuchin decline, a healthy dose of skepticism has now swept over global markets as traders doubt one day of negotiations will be enough to thwart off an increase in China tariffs. The European Commission is also adding to the “risk-off” feel to markets this morning after it slashed in half its 2019 GDP growth forecast for Germany. The S&P futures are now trading back towards their session lows; June crude oil prices are following suit, and we’re seeing broad demand for the safe haven USD and JPY as NY trading gets underway today. We think USDCAD may consolidate its early European session rally this morning, but we think the chart technicals look a whole lot better compared to this time yesterday.
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EURUSD: Euro/dollar is trading on the defensive this morning as a multitude of factors sour the mood. First, Germany reported weaker than expected Factory Order data for the month of March (+0.6% MoM vs +1.5%). This appeared to thwart trader attempts to surpass chart resistance at 1.1220, and EURUSD then started to come off when the S&P futures started to fade the Vice Premier Lui He headlines. The European Commission’s latest GDP forecasts (that came out just shy of the 8amET hour) appear to be catalyst for another wave of EUR selling here, as everybody seems focused on Germany’s 2019 growth now being chopped down to just +0.5% vs +1.1% previously. Dollar/yuan is trading steady today, and it has yet to fill its Sunday opening gap higher. Over 1.1blnEUR in options expire at the 1.1150 strike in EURUSD this morning, and so we think the market could remain under a bit of pressure here.
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GBPUSD: Sterling has been following EURUSD for the most part in overnight trading; higher in Asia and early European trading, but now lower as a combination of US/China trade deal skepticism and lower German growth forecasts sour the global risk mood. The Bank of England’s Cunliffe didn’t offer any clues on the UK monetary policy outlook when he spoke earlier today. The BOE’s Haldene will be speaking today at 12:30pmET. The EURGBP cross has broken back above the 0.8560 level (which was the level that opened a floodgate of GBP buying when it gave way on Friday). We think this is technically positive for the cross, and should pressure GBPUSD further into chart support at 1.3025-45.
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AUDUSD: The Reserve Bank of Australia decide to stand pat on interest rates last night, dashing the hopes for some of entrenched fund shorts in the marketplace that were expecting a cut. In a rather dovish statement however, that featured a lot of revisions compared to the prior meeting, the RBA lowered its 2019 GDP forecast to 2.75% from 3.00% and lowered its inflation forecast to 1.75% from 2.00% previously. Some think the decision to hold rates in light of a weaker outlook was politically motivated considering the Australian general election is just over a week away on May 18. We would note the board’s continued focus on the strong Australian labour market, and its hope that this will eventually boost inflation. AUDUSD shot immediately higher following the release but has since given back half of its gains as EURUSD selling picks up steam in NY trade so far this morning. Chart support today comes at 0.6990-0.7000 (last night’s breakout point).
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USDJPY: Dollar/yen is trading with a choppy, offered tone this morning as risk-off safe haven flows for JPY slightly outweigh broad demand for dollars. The market’s Sunday opening gap remains partially unfilled (110.95-111.10) and so think of this as a natural target should we get a recovery in risk sentiment this week. For the time being though, risk sentiment remains sour with the S&P futures now off almost 1% on the session. The US 10-yr bond yield is now trading back below 2.50%. We would not be surprised to see USDJPY re-test yesterday’s lows in the 110.30s, and this would put further stress on the entrenched fund long position.
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