Forex news from the European trading session - 28 May 2018
Headlines:
- Cottarelli says he accepts mandate to form government ahead of elections
- Spain's Rajoy set to face no-confidence vote on Friday - report
- Italy president Mattarella gives mandate to Cottarelli to form a government
- Sturgeon says absolutely nothing to stop Scotland from using GBP post-independence
- Forza Italia says it won't vote in favour of possible government led by Cottarelli
- Nicola Sturgeon says Scotland wants to stay in EU customs union
- CBRT confirms decision to set up narrow, symmetric interest rate corridor
- Italy April PPI -0.7% vs +0.4% m/m prior
- SNB total sight deposits w.e. 25 May CHF 576.6 bn vs CHF 576.4 bn prior
- Lega's Salvini says to evaluate alliance with Five Star Movement in future elections
- Italy early elections could be set for 9 September - report
- South Korea's Moon asks aides to prepare for future talks with North Korea
- RBA's Harper says falling house prices wouldn't scuttle rate hikes
- New Zealand plans phased eradication of cattle disease MBovis
Markets:
- NZD leads on the day, CHF lags behind
- European equities lower, Italy's FTSE MIB leads losses - lower by 1.5%
- Gold lower by 0.27% to $1,298.13
- WTI lower by 1.77% to $66.68
- US 10-year yields not traded (US holiday)
- Bitcoin down by 2.95% to $7,228
The session started off with a calm demeanour with risk assets cheering on news that the US-North Korea summit may yet still be happening and the euro led the way after weekend news that Five Star and Lega abandoned plans to form a government - following Italian president Mattarella's decision to veto euroskeptic Savona as economy minister.
The euro rallied to test the 100-hour MA against the dollar early on, but retreated thereafter and stayed close to the 1.1700 level. As European markets opened, things were still bright for Italian assets.
But as investors slowly digested the imminent possibility of fresh elections and the fact that that may only reinforce the position of Five Star and Lega as the two main parties, Italian assets started crumbling. And boy, did it crumble.
The euro was dragged lower as the sentiment surrounding Italian assets was acting as a general sentiment indicator for the euro throughout the day. As BTPs and Italian stocks sold off, so did the euro and it fell to session lows as a result.
Other currencies were more steady during the day, with USD/JPY trading between 109.30 to 109.40 levels. Meanwhile, GBP/USD traded between 1.3310 to 1.3330 levels for the most part. The same goes for AUD/USD and NZD/USD too as their gains were largely on the back of Asian trading following the positive risk tones from the US-North Korea development.
The movement there isn't too surprising given that UK and US traders are away today.
Other than that, oil remains heavily pressured but manages to find some relief from a trendline support level. That has so far stalled declines in the commodity in the session, but it continues to put pressure on the Canadian dollar with USD/CAD flirting with a test of the 1.3000 handle still.
The other key news was that the CBRT decided to restructure their interest rate framework, allowing for a more narrow corridor and more structured approach to monetary policy. That helped the lira to rally by more than 3% against the dollar - being the best performing emerging market currency today.
