Monday offered tentative evidence that market participants are prepared to adopt a bullish stance in the new week following a lackluster US jobs report and a deescalation of tensions in the Mideast.
Last week, we mentioned CNHJPY trading at the highest levels since May. On Monday, the onshore yuan pushed to the strongest in five months against the dollar, trading below 6.90 for the first time since August, when renewed trade tensions irritated Chinese policymakers, who let the currency depreciate through 7, rattling markets far and wide.
The yuan’s rally is giving Chinese equities an extra lift, while stabilization in the world’s second-largest economy ahead of the signing of the “Phase One” trade deal with Trump this week helps too. The stronger yuan is also a way to help Beijing build trust with the White House and probably hasn’t gone unnoticed by Steve Mnuchin, even if Trump has been too busy assassinating folks to play FX strategist.
Meanwhile, dollar-yen rose 0.4% Monday to the highest since May as stops above 109.73 were filled, traders in Europe said.
This marks a rather stark reversal from last week, when Iran’s counterstrikes on US targets in Iraq triggered a short-lived surge in the Japanese currency as algos chased the war headlines.
And then there’s bunds. 10-year German yields are now back to levels last seen in – you guessed it – May, as everything looks to fill the gap from one of 2019’s two major trade escalations.
“The market isn’t inclined to pay attention to the data this morning. The focus is on the US/Chinese ‘Phase one’ trade deal that is due to be signed on Wednesday”, SocGen’s Kit Juckes said. “Bond yields are slightly higher, with the exception of Japan (shut) and the UK; equity indices are higher with the exception of Australia’s ASX, which has its own crisis, and in the FX market, the yen and Swiss franc are at the bottom end of the overnight rankings, with only sterling lower”.
This week, traders face a full docket. As Trump would say: “We’ll see what happens”.