Forex news from the European morning session - 28 May 2019
Headlines:
- Angela Merkel reportedly determined to stay in power until 2021 as succession plan unravels
- EU's Moscovici said to be not in favour of sanctions against Italy over fiscal policy
- US-China trade talks reportedly hit a snag because US 'kept adding new demands' to negotiations
- Eurozone May final consumer confidence -6.5 vs -6.5 prelim
- Germany's DIHK cuts 2019 GDP growth forecast to 0.6% from 0.9% previously
- ECB's Villeroy: Maintaining low interest rate environment is completely justified and necessary
- Iran says that it sees no prospect for negotiations with the US
- Italy's Salvini: I will use all my energies to fight outdated EU fiscal rules
- PBOC's Yi: Current benchmark lending and deposit rates are at appropriate level
- PBOC's Yi says confident in keeping the yuan stable
- Switzerland April trade balance CHF 2.29 billion vs CHF 3.18 billion prior
- Germany June GfK consumer confidence 10.1 vs 10.4 expected
- Switzerland Q1 GDP +0.6% vs +0.3% q/q expected
Markets:
- JPY leads, CAD lags on the day
- European equities weaker; E-minis down 0.2%
- US 10-year yields down 3.2 bps to 2.287%
- Gold down 0.4% to $1,284.35
- WTI up 0.6% to $59.00
- Bitcoin down 0.4% to $8,716
London traders return from their long weekend to some choppy price action on the day but the notable trend is that there is yen strength amid more cautious risk sentiment, with US 10-year Treasury yields hitting their lowest levels since October 2017 during the session.
USD/JPY hugged the 109.50 level to begin the morning but quickly descended to a low of 109.21 as equities reversed course alongside a drop in yields. Lingering trade tensions between US and China and the renewed focus on Italy's debt/budget situation are reasons that aren't helping with the risk mood as we begin the day.
The euro also holds a little weaker, with EUR/USD slipping from 1.1190 to a low of 1.1176 before recovering back to levels seen at the start of the European morning. The pound was an active mover as cable climbed to a high of 1.2702 in early trades before quickly fading gains to fall to a low of 1.2654 and trades mildly off said low currently.
The backdrop of uncertainty caused by UK politics and Brexit is one of the factors still weighing on the quid but month-end flows are also playing a part in causing the choppy price action we're seeing so far today.
Other than that, the aussie and kiwi are mildly higher against the dollar but ranges remain relatively narrow with AUD/USD just up a couple of pips at 0.6920 levels but the pair sits in a 14 pips range only in trading today. NZD/USD isn't much better as the pair is trading in a narrow 15 pips range.
Looking ahead, expect risk flows and month-end flows to continue to play a part in determining further market direction. If you're trying to make sense of all of the choppy price action, I would say don't try and overthink things when it comes to days like these as flows take precedent over fundamentals/technicals.
