Rates: Risk aversion to reign trading today?
Asian stock market lose up to 2% overnight with risk aversion set to spill to European/US trading. Core bonds could profit with US Treasuries lagging German Bunds going into the US Treasury’s end-of-month refinancing period. BTP markets could stabilize in the short run with Italy and the EU entering a negotiation phase after placing opening bets.
Currencies: dollar regains the benefit of the doubt.
Yesterday, EUR/USD couldn’t maintain earlier gains as uncertainty on the Italian budget finally pushed the single currency back south. This morning, sentiment in Asia turned outright risk-off. For now, it looks that the dollar and the yen are again in the best position to profit. DXY is testing the 96 level. EUR/USD again nears the 1.1432 support.
The Sunrise Headlines
- US equity markets closed yesterday’s session with losses, with the exception of technology shares (Nasdaq +0.26%). All Asian markets open in red this morning with Japan and Hong Kong underperforming with losses over 2%.
- President Trump sent CIA director Gina Haspel to Turkey to seek clarification on the Khashoggi murder. He said he is not satisfied with Saudi Arabia’s explanation so far, after Treasury Secretary Mnuchin met with the Crown Prince.
- UK PM May survived another confrontation in parliament yesterday, as a vote of no confidence was again rumoured but didn’t take place. She reaffirmed a split between Northern Ireland and the rest of the UK is really not an option.
- The UK government is making plans to issue instructions to UK-based companies next month to prepare them for a no-deal Brexit. The move is independent of how the negotiations with the EU proceed.
- Pablo Casado, Spanish opposition leader, accused the socialist government of committing economical suicide in regard with the budget plan. The plan envisages higher spending, higher taxes and a sharp rise in the minimum wage.
- Mexico rejected Canada’s move to impose new tariffs and quotas on imports on seven steel categories from many countries. It is considering different types of retaliation measures, including going to the WTO.
- Today’s eco calendar contains October Richmond Fed Manufacturing Index and EMU Consumer Confidence. BoE chief economist Haldane, Governor Carney and Fed Bostic, Kashkari and Kaplan are scheduled to speak. The US taps the market
Currencies: Dollar Regains The Benefit Of The Doubt
Dollar again in driver’s seat. DXY tests 96.00
Swings in EUR/USD were mostly driven by the news on Italy Monday. Early in the day, investors mostly saw constructive headlines, including remarks from EU’s Moscovici. Italian spreads narrowed and EUR/USD spiked higher to the mid 1.15 area. Later, there were ever more indications from Italian politicians that the government has little intention to change the 2019 budget. European equity markets reversed a positive open and so did the euro. EUR/USD closed at 1.1464, from 1.1514 on Friday. USD/JPY held up fairly well even as sentiment on risk deteriorated later in the day. The pair finished 112.82. Overnight, Chinese equities are unable to extend the comeback from Friday and yesterday, inspired by market friendly comments from all kinds of policy makers. The erosion sentiment in China weighs on regional markets. USD/CNY (currently 6.9420) is holding near recent peak levels. The yen regains modest ground (USD/JPY near 112.55). EUR/USD hovers in the 1.1460 area. Today, the US & EMU eco calendar contains only second tier data. The EC consumer confidence is worth keeping an eye on. Global market sentiment will probably again be the main driver for global FX trading. Of late, the dollar wasn’t always able to profit from corrections on (US) equity markets. However, with the trade-weighted USD at 96.00, it looks that the US dollar is again in the driver’s seat. This week, several US bellwethers will report results. Markets are keen to see whether they stay optimistic on the (near) future. Investors are growing more uncertain on the impact of (geo) political nervousness on growth. So, results probably will have to be strong to improve global risk. The jury is still out what this will mean for global FX trading. As long as uncertainty on Italy persists, the dollar (and the yen) are most likely to profit from global political and economic noise, rather than the euro. 1.1432 remains first intermediate support for EUR/USD. A break below would open the way to the 2018 low at 1.1301.
On Monday, an address of UK PM May before parliament illustrated the deadlock on Brexit as hard Brexiteers in the conservative party continue to reject proposals for a comprise. This time, sterling lost some ground. EUR/GBP returned to the mid 0.88 area. Today, CBI order data will be published. However, Brexit will probably continue to dominate sterling trading. Yesterday, sterling showed more vulnerable. Still, we assume more directionless trading as long as the Brexit uncertainty persists.
EUR/USD: dollar regains momentum, euro suffers from Italy. EUR/USD 1.1432 support again within reach.
