Overnight Headlines

* China announces to cut quarantine time for international travellers

* UK PM Johnson wins Commons vote on bill to rip up N Ireland protocol

* Oil extends gains on supply disruptions ahead of OPEC+ meeting

*Asia stocks edge down after Wall Street falls

US equities pared gains after initially rising from stronger-than-expected durable goods data. Energy was the standout performer, rebounding almost 3% globally. The S&P500 ended 0.3% lower and remains around 18% down on the year. The tech-heavy Nasdaq dropped 0.8%. Asian stocks are mixed with the region partially shrugging off the lacklustre US handover. Futures are pointing to a better open in Europe and the US.

USD continues to hover around the 104 handle with G10 FX relatively muted. EUR traded flat as it awaits the ECB speakers at its Sintra forum.  GBP remains rangebound with no follow-through after UK lawmakers voted to support the Northern Ireland Protocol bill. USD/JPY marginally pulled back from Monday’s high but held onto its 135 status. AUD and NZD were subdued, consolidating above 0.69 and 0.62 respectively.

Day ahead – ECB’s Lagarde at the Sintra forum

The highlight for markets is expected to be ECB President Lagarde’s speech at its forum in Portugal. Focus will be on any more detail about the new anti-fragmentation tool which the bank is expected to fully unveil at its next meeting in July. Hints on the path of policy tightening will also be of interest.

There is the potential for disorderly core-peripheral spread widening as the ECB embarks on raising interest rates. Spread widening is where government bond yields in various parts of the eurozone rise at different speeds in response to higher rates. Bonds belonging to “core” nations like Germany would typically be expected to increase at a slower pace than the bonds in “peripheral” countries like Italy and Greece.

This means the cost to peripheral nations of higher ECB rates is greater and a concern is that the ECB could destabilise the region and be forced to abruptly halt their rate hiking cycle. This complex issue needs to be resolved soon and markets will be listening intently to Lagarde. She is scheduled to speak at 09.00 BST.

Chart of the Day –EUR/USD looking to push higher

The most world’s most popular currency pair has built a series of higher lows, having recovered from the mid-month bottom at 1.0358. Euro bulls have recently tested the 50-day SMA a few times over recent sessions. This resistance currently sits at 1.0593.

Pressure looks to be building to the upside, but buyers need to push beyond this level soon. Above 1.0593 lies the March 2020 low at 1.0636 which is close to trendline resistance. Near-term support is 1.0550 ahead of the 1.05 figure area.