Here is my big picture on the FX and bond market for the next week.
Last week review
Last week, there were 3 things, positive for the risk sentiment and S&P500 went up by 1.2%.
・Positive headlines for Coronavirus vaccines in the US and Europe
・US finance institution 2nd quarter results were OK
・Market expecting US and EU additional policy implementations, such as EU Reconstruction Fund plan and US tax reduction on the personal income
However, we can see the upward pressure has weakened; resistance line is 3240. If there is the positive news on the policy implementations, it will be break it. On the other hand, if the EU don’t reach out the EU Reconstruction Fund agreement on this weekend, the S&P will open with big gapped under around 3200. Nikkei stock will decline before that.
Here is 30min bar chart.
Here is hourly chart to show resistance line.
Next week catalyst
Next week there is US PMI on the 24th. Market expects both Manufacturing and service PMI above 50; if these indicators are below 50, the risk assets will be sold. I want to check EU May current account to capture the big EUR direction. In addition, if the EU PMIs are below 50, this will become downward pressure.
In the policy story, EU Reconstruction Fund agreement will be a big issue. Now already 3rd day under discussion for this matter in the EU commission with opponent by Holland that weight heavily on the fiscal discipline.
Japan had 4 consecutive days over 200 new cases and today (Sunday) it has 180 cases. In the US, Arizona, in addition to Florida, California, and Texas have increased new cases. In Brazil, there are above 200million cases. We should not underestimate the real economic impact.
Corporate results are important on the UST curve
Last week, US Treasury 10 years yield moved from 0.6% to 0.67% even with the Coronavirus negative headlines. We need to see the policy agreement happened and 2nd quarter corporate financial results over the market expectations for 10 years yield to break 0.7% before August. However, the main scenario is to keep the range.
JGB 20 years yield correlates with UST and next week we can see the solid demand in the 20 years auction.
Next week main financial result schedule
On 20th IBM
On 21st Coca‐Cola, Philip Morris, and Texas Instrument
On 22nd Tesla and Microsoft
On 23rd 53rd Bank, Freeport-McMoRan, and Intel
on 24th Verizon and Amex
Europe Core rates depend on the EU Reconstruction Fund discussion
Europe core country rates dropped with ECB and rebound on this Friday. I figure out the rebound is just following UST not reflecting Reconstruction Fund discussion.
USDJPY under small range
USDJPY has moved in the range from 106.65 to 107.4. With disagreement of the EU Fund, I expect the JPY appreciation. However, after the market confirm the solid 2nd quarter financial results, USDJPY will rebound again.
EURUSD up to the EU Reconstruction Fund discussion
The price touched 2σ upper line based on the Stochastics, it has apart from the line. Since June 12th, We had seen the directional change after the same situation and we need to cautious. First stop line will be 2σ lower line on the Stochastics, and second line will be the bottom of the channel.
Last week, risk assets were bought with the limited upward space and US treasuries were bought overall. Next week, it is possible that both equity and bond market move with volatility, especially with EU Reconstruction Fund discussion. Both US and Europe PMIs are expected over 50 and if they are blow 50 risk assets will be sold and treasuries be bought. I expect that USDJPY will be still under the range and EURUSD be EUR depreciation.