· The dollar rebounded modestly against the yen on Tuesday as Treasury yields pulled back from 15-month lows as investors reassessed the risks of a sharper downturn in the global economy.
The pound stuck to a narrow range with British lawmakers scheduled to vote on a range of Brexit options later in the day.
· “The dollar has tracked U.S. yields. But the trend may have run its course, with little further downside seemingly remaining for yields,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.
“The decline by U.S. equities has also slowed, and this has supported the dollar as it shows that the market’s economic prospects remain reasonably good with the Fed preparing to take a more dovish approach, ” he said.
· The dollar edged up 0.1 percent to 110.065 yen and put some distance from a six-week low of 109.70 plumbed the previous day, when fears of a global economic slowdown depressed U.S. yields and boosted investor demand for the yen, a perceived safe haven.
U.S. consumer confidence and housing-related data was due later in the day and could provide near-term cues for the currency market.
“The dollar should draw further support if today’s economic indicators are robust, as strong data may be about the only factor to prevent Treasury yields from falling further,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.
· The euro was steady at $1.1317.
Sterling was effectively flat at $1.3197 after spending the previous day confined to a narrow range when British MPs wrested control of the parliamentary agenda from the government for a day in a highly unusual bid to find a way through the Brexit impasse.
· USD/JPY failed to sustain the recovery near 110.25 region and retreated to the 110 handle , as the US dollar remains broadly subdued amid downbeat remarks from Fed's Rosengren on the US economy but the downside remains in check on the back of an uptick in Treasury yields and risk-on rally in the Asian equities.
The 110.25/30 are comprising March 25 high and low of March 21 restricts the pair’s immediate upside, a break of which highlights 50-day simple moving average (SMA) figure of 110.45 and 111.00.
Alternatively, 109.75/70 seems immediate support ahead of highlighting 109.30 and 109.00 rest points.
· Euro Price Outlook: EUR/USD Battle Lines Drawn into March Close
Technical Outlook: In my latest EUR/USD Weekly Technical Outlook, we noted that price was testing critical, “yearly open resistance at 1.1445 on the back of the FOMC interest rate decision. Note that a pair of trendlines extending off last year’s March & September highs also converges on this region and further highlights the technical significant of this resistance zone.” Euro reversed sharply off this threshold with price closing lower on the week as daily momentum failed at 60 (typically bearish).
That said, the focus is on support into the start of the week and IF this pullback is corrective, losses should be limited to the lower parallel / 2018 low at 1.1216. Confluence resistance stands at the 3/21 outside reversal close / monthly open at 1.1370/72 with critical resistance steady at 1.1419/45 – a breach / close above this region is needed to validate a larger breakout targeting the median-line.
· The yield on the benchmark 10-year Treasury note fell on Monday to its lowest level since December 2017 as fixed-income investors continued to worry about global growth and a potential deceleration in the U.S. economy.
Those fears kept the Treasury yield curve inverted during the session, with the yield on the 3-month bill above that of the 10-year note.The short-term rate first exceed that of several longer-term securities last week in a phenomenon known as inversion and viewed by many as a recession predictor.
The yield on the benchmark 10-year Treasury note, which moves inversely to price, was lower at 2.388 percent, its lowest since December 2017. The yield on the 2-year Treasury note was also lower at 2.233 percent while the 3-month yield was at 2.454 percent.
· U.S. government debt prices were lower on Tuesday morning, as investors await a fresh batch of economic data and another round of Treasury auctions.
At around 3:10 a.m. ET, the yield on the benchmark 10-year Treasury note, which moves inversely to price, was higher at around 2.4283 percent, while the yield on the 30-year Treasury bond was also higher at 2.8863 percent.
On the data front, housing starts and building permits for February will both be released at around 8:30 a.m. ET. Consumer confidence figures for March as well as the latest Richmond Fed surveys and Dallas Fed services data will follow later in the session.
Market participants are likely to closely monitor speeches from policymakers at the U.S. central bank. Chicago Fed President Charles Evans, Philadelphia Fed President Patrick Harker and San Francisco Fed President Mary Daly are all expected to comment on the world's largest economy at separate events on Tuesday.
Speaking in Hong Kong on Tuesday, Boston Fed President Eric Rosengren said weak bond yields in other countries are hurting U.S. long-term bond yields. Still, he does expect Treasurys to eventually start inching higher.
· With the Mueller investigation out of the way, there will be more incentives for the U.S. and China to come up with a trade deal, analysts say.
“The Mueller report isn’t a game changer, but it should encourage China to keep up recent momentum in trying to finalize a deal with Trump,” says Michael Hirson, Asia director at consulting firm Eurasia Group.
The trade talks have dragged on amid a delay in arranging a meeting between Trump and Chinese President Xi Jinping, which was initially expected to take place by the end of March.
· Goldman Sachs Group Inc. added its voice to those advising against panic over the inversion of the U.S. yield curve, which has served as a recession warning in the past.
The proportion of the yield curve that’s inverted isn’t as high as in past recessions, and part of the reason 10-year Treasury yields have slumped can be attributed to dynamics outside the U.S., Goldman strategists led by Alessio Rizzi and Christian Mueller-Glissmann wrote in a note Monday. American credit spreads also aren’t telegraphing stress, they highlighted.
· Standard Chartered PLC Chief Executive Bill Winters said fears over a slowdown in China’s economic growth and the impact of the Sino-U.S. trade tensions are “receding a bit”.
“China has taken modest actions to re-stimulate the economy,” Winters said at the Credit Suisse Asian Investment Conference in Hong Kong on Tuesday.
“We feel quite good about China,” he said.
· British lawmakers wrested control of the parliamentary agenda from the government for a day in a highly unusual bid to find a way through the Brexit impasse after Prime Minister Theresa May’s EU divorce deal was rejected again.
Lawmakers will now vote on a range of Brexit options on Wednesday, giving parliament a chance to indicate whether it can agree on a deal with closer ties to Brussels - and then try to push the government in that direction.
What will MPs vote on?
1. revoking Brexit;
2. holding another referendum;
3. supporting May's divorce deal;
4. supporting a "Norway plus" deal, which would keep the UK in the EU Single Market;
5. backing a "no deal" Brexit.
· German consumer morale deteriorated unexpectedly heading into April, a survey showed on Tuesday, suggesting that household spending could weaken in the second quarter of this year.
Record-high employment, hefty pay hikes, moderate inflation and low borrowing costs have helped household spending to replace exports as the most important pillar of economic growth.
The GfK market research group said its consumer sentiment indicator fell to 10.4 points heading into April from a revised 10.7 the previous month. That undershot the forecast of 10.8.
“Despite these losses, consumer mood among Germans remains decidedly positive,” GfK researcher Rolf Buerkl said.
· Trade tensions between the U.S. and China have caused huge amounts of economic uncertainty and could cut Asia’s economic growth by 0.5 percentage point, a senior International Monetary Fund official said on Tuesday.
· Chinese Premier Li Keqiang reaffirmed Beijing’s pledge to further open up to foreign investment as he met with global business executives, and sought to assure them that the rights of foreign firms would be protected.
China is committed to providing foreign investors and companies with a more open and transparent business environment, along with guarantees of intellectual property rights protection and no forced technology transfers, Li told the executives the sidelines of the China Development Forum.
· Japanese Prime Minister Shinzo Abe will likely proceed with a scheduled sales tax hike in October even though slowing global demand and soft wage growth could weigh on the economy, one of the architects of the premier’s stimulus policies said.
Kozo Yamamoto, a senior ruling party lawmaker with close ties to Abe, also said there was not much more the Bank of Japan can do to jump-start the economy under its current policy framework that targets interest rates.
· Oil prices climbed on Tuesday, pushed up by supply cuts led by producer club OPEC and U.S. sanctions against Iran and Venezuela, although concerns about a potential recession kept markets from rising further.
Brent crude oil futures were at $67.48 per barrel at 0747 GMT, up 27 cents, or 0.4 percent, from their last close.
U.S. West Texas Intermediate (WTI) futures were at $59.35 per barrel, up 53 cents, or 0.9 percent, from their last settlement.
Reference: Reuters, CNBC, BBC, Daily FX, Bloomberg
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