Market Drivers July 8, 2019
Dollar gives up some of Friday’s gains
EZ investor confidence at 5 year lows
Nikkei -0.98% Dax -0.22%
UST 10Y 2.02%
Europe and Asia:
EUR GE IP 0.3% vs. 0.4%
EUR GE Trade Balance 18.7B vs. 16.8B
EUR Sentix -5.8 vs. 0.3
It’s been a very quiet start to the trading week in FX, with markets coming back post US holiday amidst general summer doldrums and lack of any meaningful data on the eco calendar.
The dollar was slightly weaker post its NFP driven surge last Friday with USDJPY unable to clear the 108.50 several times in Asia session trade. The pair fell back to 108.28 but rebounded as it continues to hold just below the level in morning London dealing.
The trade in USDJPY is driven by US 10Y yields which also stalled in their post NFP rally holding just above the 2% at 2.02 in overnight dealing. Generally, it looks as through both will likely tread water for now and USDJPY won’t be able to make a run through 109.00 until the 10Y yield definitely pushes above the 2.10% level.
In news the second tier data out of Germany continued to show weakness in the region with Industrial Production coming in at 0.3% vs. 0.4%, the Trade Balance beating only due to a collapse in imports and Sentix investor sentiment sinking to a 5 year low. It didn’t help matters that Deutsche Bank announced layoffs of 18,000 workers as it struggles to reorganize yet again. The news pressed on the EURUSD keeping it capped below the 1.1250 level and if dollar flows resume as the day proceeds the pair is vulnerable to further selloff and a possible test of the 1.1200 figure which it managed to survive on Friday.
With no major economic data on the docket for rest of the day, FX flows could remain moribund as traders position for Wednesday which promises to be the marquee event of the week as Chairman Powell testifies to Congress. The key question for FX will be whether the Fed will consider a continuous easing program or a one-off cut to pacify the markets. Given their past comments, the odds suggest the latter which provide support for the buck as the week proceeds.