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Jakob Christensen, chief analyst at Danske Bank, suggests that horrific flash PMIs in both the Euro Area and the US triggered a strong risk-off move yesterday and sent US rates and yields sharply lower.

Key Quotes

“A break with recent policy inaction on the trade war and/or monetary policy would be needed for our medium-term view of a higher EUR/USD to start materialising.”

“There is not much in the forward looking indicators of the PMIs to suggest a near-term turnaround for the better. Hence, we might be approaching the tipping point where data and market sentiment are bad enough to force central banks’ hand.”

“In particular, we will follow Fed speakers in coming weeks for hints as to whether they are ready to move towards the increasingly dovish market pricing. In turn, this could be the market’s cue to start reversing short positions in EUR/USD.”