Forex news from the European trading session - 28 September 2018
Headlines:
- October is going to be a long month for Italian bond investors (and the euro)
- Salvini: Italy's right comes before EU bureaucrats
- Italy September preliminary CPI -0.4% vs -0.2% m/m expected
- Eurozone September preliminary CPI +2.1% vs +2.1% y/y expected
- UK Q2 final GDP +0.4% vs +0.4% q/q prelim
- Germany September unemployment change -23k vs -9k expected
- ECB's Lane says that there will be more precise rate hike debate next summer
- Switzerland September KOF leading indicator 102.2 vs 100.0 expected
- Spain Q2 final GDP +0.6% vs +0.6% q/q prelim
- Spain September preliminary CPI +0.2% vs +0.2% m/m expected
- France September preliminary CPI -0.2% vs -0.2% m/m expected
- Italy's Tria says he'll stay on as finance minister to avoid 'chaos'
- Italy's Lega party says budget numbers are "not set in stone"
Markets:
- CAD leads, EUR lags on the day
- European equities all lower, FTSE MIB leads losses
- Gold down 0.03% to $1,182.54
- WTI up 0.06% to $72.16
- US 10-year yields down 2.2 bps to 3.029%
- Bitcoin down 0.59% to $6,653
For the second European session running, it's been all about Italy. And this time around, the market moves were more significant compared to yesterday. The euro was in a bad spot to start the day as key technical levels were broken in overnight trading. EUR/USD started the session around 1.1640 and when Italian bond yields started to surge higher, it was a cue for sellers to come in.
EUR/USD tracked lower to 1.1613 as the FTSE MIB also got hit hard at the open, being down by 2.3%. There wasn't much contagion then as the euro was the major currency hit by all of this while Treasury yields were steady as well.
But as the Italian bond rout deepened and inflation figures surprised on the soft side, it was enough to drag the euro below 1.1600 against the dollar and the pair continues to trade near the lows currently near 1.1580.
Of note, Italian bond yields are up between 25 to 35 bps across the curve and are set for their biggest jump since May, when the populist government worries surfaced. Meanwhile, the FTSE MIB is now down 4.3% and looks set for its biggest decline since June 2016.
GBP/USD had a bit of a see-saw session with the pair trading around 1.3050-70 early on before moving lower on the back of the Q2 final GDP reading for the UK. The report was a tad softer and that saw cable fell to a low of 1.3035 before quickly climbing back up to 1.3060 levels again. But as we move towards US trading, sellers are back and we're trading close to the lows once again near 1.3040.
Other major currency pairs offered little action on the day. USD/JPY started the session firmer at around 113.50 levels before tailing off to touch a low of 113.32 as a slight hint of risk off tone swept across markets. But the pair now trades near flat on the day close to 113.40.
The Canadian dollar is the surprising leader in all of this as Poloz's upbeat comments on NAFTA from Asian trading continues to underpin the loonie in European trading. USD/CAD gradually inched lower during the session from 1.3030 to a low of 1.3009 and sits near the lows currently awaiting US traders to come in.
The aussie and kiwi were more subdued as they traded in a range despite the slight shift in risk sentiment. AUD/USD and NZD/USD sits in a 23 pips and 21 pips range so far today with both pairs seeing limited action as the focus of markets have been on Italy so far.
