• The EU Summit continues to run into trouble amid political differences.
  • The US PMI and Eurozone unemployment rate can offer intermediate directions while political plays are likely dominating near-term trade momentum.

In spite of the US-China trade truce limiting the EUR/USD pair’s immediate upside, the quote seesaws near 200-D EMA as traders remain cautious ahead of the EU’s top job announcements.

Given the EU leaders’ inability to agree on top job announcements during the meeting in Brussels, the pair refrains from portraying the latest trade truce between the US and China while trading near 1.1367 during early Monday morning in Asia.

The EU leaders are wrangling over to decide who will occupy the region’s top jobs, including the European Central Bank (ECB) President and the European Commission Chief among many.

Recently, the BBC quoted European Council President Donald Tusk saying that if necessary the talks will continue at breakfast on Monday.

The news report further mentions that the disagreement between the center-right and the nationalists like French President Emmanuel Macron is delaying the issue.

Read: EU Summit preview: Four EUR/USD scenarios for the selection of the new ECB President

In addition to the EU Summit outcome, the US ISM Manufacturing Purchasing Manager Index (PMI) for June and the Eurozone Unemployment rate could offer additional directives for trade decisions. While the US manufacturing gauge is expected to soften to 51.0 from 52.1, the Eurozone Unemployment Rate bears the no change forecast to 7.6%.

Technical Analysis

Latest high around 1.1415 and March month top near 1.1450 can keep being on buyers’ radar till the price remains above 200-day exponential moving average (200-D EMA) level of 1.1363. Alternatively, June month high around 1.1350 and 21-D EMA level of 1.1309 can please sellers during the downturn.

EU leaders has been meeting in Brussels earlier and were divided over who should get the EU's top jobs, including a successor to Commission chief Jean-Claude Juncker. Soon after the working dinner began the talks were suspended. Summit chair Donald Tusk decided to have a break for bilateral talks, and his spokesman said the summit would resume later. "If necessary the talks will continue at breakfast on Monday", Mr Tusk says.

Mr Timmermans for the top job

The BBC reported that Mr Tusk was was proposing Mr Timmermans for the top job, as part of a balanced package. "But there is intense national rivalry. The rare Sunday summit was called because EU leaders failed on 20 June to agree on candidates for the Commission president's job and other top posts: European Council president (to replace Donald Tusk); high representative for foreign policy (to replace Federica Mogherini); European Parliament president and European Central Bank president."

  • The price of oil shoots higher on demand side bias.
  • G20 pans out bullish for global growth demand prospects for oil.
  • Iraq's oil minister suggests prices are on the low side and $70 plus is a good price.

Following the news that Russia has agreed with Saudi Arabia to extend the deal with OPEC on reducing oil output, as well as a trade war truce between China and the US and today's comments from Iraq's oil minister ahead of the OPEC meeting beginning Monday in Vienna, the price of a barrel of oil has shot higher up to the $60 handle.

Iraq's oil minister:

  • We have open mind on oil output deal extension.
  • Fully endorses extension to end of year, no objection to nine months
  • Any decision by OPEC, OPEC+ must be taken within premises of OPEC.
  • On deeper cuts, says it's too early to say.
  • Says oil prices are on the low side, $70 plus is a good price.
  • RBNZ’s Deputy Governor Bascand was speaking at a conference.
  • NZD/USD lifted on trade war cease-fire, but attention will move to central banks soon enough.

RBNZ’s Deputy Governor Bascand was speaking at a conference hosted by Otago University and said that “financial stability is important for the wellbeing of New Zealanders, and macroprudential policy is a key line of defence for safeguarding financial stability.

"Our refreshed strategy on the macroprudential policy provides us with greater clarity on how we will use macroprudential tools in the future," he said, adding, "and provides New Zealanders with the confidence they need that the financial system is in good hands.”

Full speech

"When risks are heightened, the Reserve Bank uses macroprudential tools to complement other financial regulation, such as capital requirements. That reduces the likelihood and severity of threats to the financial system, and mitigates the adverse impact on the economy.

In the macroprudential toolkit the most well-known tool is the loan-to-value ratio policy (LVR) which improves the resilience of mortgage loans. There are also capital and liquidity tools that build additional buffers for banks, putting them in a better position to keep lending to the economy should things take a turn for the worse.

Mr Bascand said that the refresh to the strategy was informed by our experience using the LVR tool. “The Reserve Bank’s LVR restrictions have been successful in reducing some of the risk associated with high household indebtedness. Our analysis showed that as a result of introducing the LVR policy, resilience of the banking system has increased, while side effects have been limited, and that’s a good outcome.”

Commenting on the outlook for LVRs, Mr Bascand noted that further easing in LVRs is possible if risks decline, which requires continuing subdued growth in credit and house prices and banks maintaining prudent lending standards. “So that tools can be utilised when they need to be, the Reserve Bank needs to maintain operational independence in macroprudential policy, supported by transparent communication and clarity about its objectives, Mr Bascand said.

“While macroprudential policy cannot be used to eliminate all risks for banks and households, or sustainably lower house prices, or manage fluctuations in economic activity, it does however play an important role in supporting a healthy financial system.”

The government is reviewing the role and powers of the Reserve Bank as they relate to financial stability, including whether the macroprudential framework remains fit for purpose."

FX implications

While the Kiwi has found a bid on the back of the recent trade war truce between Trump and Xi, attention will move back to central banks again soon enough. The rhetoric here is advocating for further rate cuts if the economy so requires. All eyes will also move to the Federal Reserve this month which is price din to cut rates. Any surprise hawkishness, however, could be highly supportive to the dollar and weigh heavily on NZD/USD.