BONDS: Firmer & Flatter As Equities Soften

• The Dollar was mostly mixed against G10s going into the European session and just ahead of the EU Cash Govie Open, but as Europe came in, the Dollar saw a Broader base bid, after Desks took in the Overnight Tariff news in their stride.
• The US and the EU agreed a 15% Tariff deal, Europe also agreed to cut its Car Import duty to 2.5% as part of the deal.
• Multiple Desks are still somewhat perplexed at the strength of the Dollar in early trade, and aside from the Trade news, new headlines or drivers have so far been limited.
• Instead some Market participants also speculate that the Fed will stick to its Hawkish stance at Wednesday's Meeting when unchanged Rate is expected from the FOMC, for some of the bid into the Dollar.
• G10 Pairs/Crosses have seen some decent early ranges, the EURUSD sees over a 100 pips range, with the EUR mostly under some small pressure following the fade off the highs in European Equities.
• The Kiwi is the worst early performer within G10 against the Greenback, and the initial support will be seen at 0.5939 in NZDUSD, last Week's low.
• Looking ahead, there are no Tier 1 Data for the session, but the US-EU trade deal details continue to trickle down.

HSBC note that the U.S.-EU trade deal has “several consequences. For investors, it reduces uncertainty surrounding future EU-U.S. trade and removes the near-term risk of an escalatory tit-for-tat trade war. For businesses, it provides greater clarity, which should support business planning and investment. Nevertheless, a new 15% tariff still provides a higher barrier for EU firms selling into the U.S. than before April 2. A higher tariff could lead firms to shift production to the U.S. and/or could weigh on the profits of EU exporters and European growth more broadly”.

• They think “EUR/USD will struggle to make further gains near term and believe other fundamental drivers such as interest rate differentials will become more influential drivers again. Since April 2, political uncertainty pushed EUR/USD higher compared to rate differentials. The reduction of political uncertainty could reverse this move”.
• More broadly, HSBC write “although Eurozone fundamentals have stabilised, we do not think the ingredients are in place for a sustained rally. With the ECB’s easing cycle complete, U.S. factors will remain the key focus, notably with the FOMC meeting on Wednesday and the U.S. labour market report on Friday”.

The bid in the broader USD, in light of the EU-U.S. trade deal and with some seemingly eying this week’s Fed decision (no change in rates expected), limits rallies in gold.

• Spot pierced Friday’s lows in Asia-trade, printing $3,324.0/oz before recovering to $3,335/oz last.
• Our technical analyst notes that gold has pulled back from its Jul 23 high, although short-term weakness is considered corrective at this stage and a bull cycle that started Jun 30 remains intact. Resistance at $3,395.1/oz, the Jun 23 high, has recently been cleared. A continuation higher would open $3,451.3/oz, the Jun 16 high. Note that moving average studies are in a bull-mode position highlighting a dominant uptrend. Initial firm support to watch is $3,282.8/oz, the Jul 9 low.