Forex news from the European morning session - 31 May 2019
Headlines:
- USD/CNH jumps after ex-PBOC governor Zhou says 7.00 is not necessarily a threshold
- US 2-year Treasury yields fall below 2% for the first time since February last year
- China is to set up 'unreliable entities' list to combat foreign firms that cut supplies to China
- Italy May preliminary CPI +0.1% vs +0.2% m/m expected
- UK April mortgage approvals 66.3k vs 63.7k expected
- Italy Q1 final GDP +0.1% vs +0.2% q/q prelim
- China said to weigh 'major retaliative measures' against US on Huawei issue
- Saxony May CPI +0.3% vs +0.9% m/m prior
- German bund yields extend decline to near record lows amid risk-off mood
- Germany April retail sales -2.0% vs +0.1% m/m expected
- Mexican peso gets crushed as tariff man strikes again
Markets:
- JPY leads, CAD lags
- European equities lower; E-minis down 1.1%
- US 10-year yields down 5.1 bps to 2.163%
- Gold up 0.6% to $1,296.42
- WTI down 2.2% to $55.37
- Bitcoin down 2.4% to $8,260
It's all about the risk-off mood in markets this morning as European traders wake up to find that Trump has slapped Mexico with fresh tariffs just as it seems a USMCA deal was in the clear. That led equities to fall alongside bond yields and the matter just got worse during the session as China maintained their hard line against the US.
The yen was the major beneficiary as USD/JPY began the session near 109.10 but quickly took out the 109.00 handle, before slipping further to a low of 108.71 amid a steady decline in Treasury yields during the session as the risk-off mood intensified.
The other major beneficiary was the franc as haven flows dominated with EUR/CHF testing levels under 1.1200 briefly before coming back up again. The euro was a silent gainer in all of this with EUR/USD rising to near 1.1150 amid some buying in EUR/GBP as well.
The pound sits near the bottom of the pile as it just can't catch a break with Brexit and UK political uncertainty continuing to prove to be a drag. Cable began the session around 1.2600-10 before falling off to lows around 1.2570 currently.
Meanwhile, the loonie is the major laggard as it already got an early knock by Trump's tariffs potentially threatening the USMCA deal but also as oil prices taking a big knock during the session. WTI crude was down by 3% at one point and that helped USD/CAD rise to a high of 1.3565 before settling near 1.3550 currently.
Looking ahead, we'll have Canadian Q1 GDP data as well as US April PCE data to add to the mix but it's going to be all about risk sentiment today. As such, watch out for reaction in the bond market and also look towards the S&P 500 as it looks to break the 200-day moving average and potentially test the 2,750 level.
