Forex news from the European trading session - 29 May 2018
Headlines:
- Five Star's Di Maio says that he never sought a euro exit
- China said to consider more US coal imports to cut deficit
- Moody's says recent developments have no bearing on decision to put Italy's ratings under review for downgrade
- Italy's Cottarelli could present list of ministers later this afternoon
- ECB rate hike bets are being taken off the table
- France May consumer confidence 100 vs 101 expected
- Italy May consumer confidence 113.7 vs 116.5 expected
- Eurozone April M3 money supply +3.9% vs +3.9% y/y expected
- US is to push China to end ban on poultry imports - Reuters
- Things are getting out of control in Italy's bond market
- Switzerland April trade balance CHF 2.29bn vs CHF 1.77 bn prior
- Fed's Bullard: Should not proceed with more hikes unless data surprises to upside
- Fed's Bullard says inverted yield curve helps predict US recessions
- More from Bullard: Oil has only a temporary effect on inflation
- Fed's Bullard says Fed should be cautious with further rate increases
Markets:
- JPY leads on the day, EUR lags behind
- European equities lower, IBEX and MIB lead losses
- Gold up by 0.43% to $1,303.67
- WTI down by 1.34% to $66.97
- US 10-year yields down by 8 bps to 2.85%
- Bitcoin up by 1.02% to $7,288
Italy's turmoil once again takes center stage in European trading as the impact now spills over across asset classes. Stocks in Asia trading slightly lower and mild risk-off tones were noticed as we headed into European trading.
But once Italian markets started opening, things got ugly. And it got ugly fast. That saw the market step up its risk-off sentiment, as safe haven assets gained traction with the euro suffering as a result of the rout in Italian assets.
The magnitude of the move in Italian bonds is suggestive that what we're seeing is no mere trade on Italian politics, but the market is also pricing in some consideration that Italy may exit from the euro.
EUR/USD started the session just above 1.1600 before slipping under the figure level and accelerated momentum in the clearing of Italy's bonds and stocks saw the pair fall to a low of 1.1510 on the day. The euro then got a bit of a reprieve as Five Star's Di Maio said that he did not wish to seek a euro exit. The pair jumped back up to 1.1550 levels before now settling a little lower.
The Japanese yen was the ultimate beneficiary from all of this as the move away from Italian bonds benefited Treasuries, with 10-year yields having fallen by 12 bps to 2.80% at one point today. That helped USD/JPY move steadily lower to a low of 108.43 having started the session near 109.00. The pair is now climbing back up again as Treasuries give up some ground with yields back up to 2.85%.
Sterling meanwhile encountered a bout of selling too as it got dragged down by the euro. Cable traded to a low of 1.3205 as a result, before climbing back up late in the session to near 1.3250 levels currently.
Commodity currencies remain weak considering the risk-off tones, with the loonie falling late in the session after having held under the 1.3000 against the dollar for a while thanks to positive news here in Asian trading.
While mostly unnoticed, the dollar is making some serious headway on the day as other major currencies falter. The dollar index rose to fresh six-month highs and only extended its gains as the session moved along. It is now testing the 95.00 handle once again, with resistance seen at the 95.15 level from the November high.
As we head into June, the dollar index is currently up by 5.5% in Q2 trading - and if it stays this way, it would mark the first time the greenback has strengthened on a quarterly basis since Trump took over as president last year.
