Forex news from the European morning session - 21 November 2018
Headlines:
- UK PM May: Future relationship continues to be negotiated with the EU
- US MBA mortgage applications w.e. 16 November -0.1% vs -3.2% prior
- Italy's Conte: Worried about bond yields spread, government will respond with reforms
- Fed said to possibly pause rate hikes cycle as early as spring
- Italy's budget: Where do we go from here?
- EU said to see Italy's budget as a serious non-compliance risk
- European Commission reported to have rejected Italy's revised budget
- Brexit: Stumbling blocks in withdrawal agreement still said to be unresolved
- Italy's Salvini: 2.4% deficit target cannot be discussed
- OECD lowers 2019 global growth forecast to 3.5% from 3.7%
- Istat cuts Italy 2018 GDP growth forecast to 1.1% from 1.4%
- Merkel: Still don't know how to solve Spanish objections on Brexit deal
- Risk recovers some ground on the day but near-term hazards to keep gains in check
Markets:
- NZD leads, JPY lags behind on the day
- European equities higher; E-minis up by 0.8%
- US 10-year yields up 1.8 bps to 3.081%
- Gold up 0.21% to $1,224.21
- WTI up 2.28% to $54.65
- Bitcoin up 4.97% to $4,554
It's been a session dominated by headlines pertaining to Brexit and Italy but there was one notable one about the Fed as well. Aside from that, it's mostly a risk story in trading today as risk appetite recovers following the beat down suffered yesterday.
Asian equities recovered into the close and E-minis continued to track higher during the day and that set up a positive tone for European stocks and risk in general as well. As a result, the yen is the notable laggard in all of this. USD/JPY started the session around 112.80 levels before slowly gaining to 113.15 and now hovers just above the 113.00 handle ahead of US trading as risk sentiment remains underpinned.
European equities got a bit of a jolt at the open as a report said that Italy's Salvini was willing to consider changes in the budget but that report was later denied by the government. Financials gave back some gains but overall the mood is still positive even after the European Commission is said to have rejected Italy's revised budget and calls for EDP measures against Italy.
EUR/USD gained early on as the dollar was weaker alongside the yen. The pair moved to 1.1400 before hovering around 1.1390 and then falling to 1.1375 as the commission announced its decision on Italy's budget.
But BTPs were very much calm (Conte said govt will respond with reforms) and that helped the euro steady itself and the single currency then pushed higher as a report came out saying that the Fed may pause its rate hike cycle as early as the end of March next year. EUR/USD rose to 1.1418 and holds near the highs still now.
The report there ensured that the dollar stays offered ahead of the next session with commodity currencies leading the charge, notably the aussie and kiwi. AUD/USD started around 0.7235 before tracking lower to 0.7220 levels but then eventually pushed back up to 0.7259 where it trades close to currently.
The pound was relatively quiet in the midst of all of this as markets are awaiting May's meeting with Juncker in Brussels later in the day to provide more clues on the Brexit deal ahead of this Sunday's summit. Calls for a leadership contest is also starting to dissipate and that is helping to alleviate some pressure off the quid today. GBP/USD started the session around 1.2790 and then moved to a high of 1.2820 before settling close to 1.2800 currently.
