Forex news from the European trading session - 5 October 2018
Headlines:
- Ireland's Coveney says hard to know if UK backstop proposal would work
- Istat says that it sees Italy's economy slowing in the coming months
- Italy's Salvini says Juncker and Moscovici have ruined Europe
- UK September Halifax house prices -1.4% vs +0.2% m/m expected
- Switzerland September CPI +0.1% vs +0.2% m/m expected
- Switzerland September foreign currency reserves CHF 739.7 bn vs CHF 730.9 bn prior
- France August trade balance -€5.63 billion vs -€4.85 billion expected
- Italy's Di Maio: No government reshuffle on the horizon
- Brexit: EU negotiators believe divorce deal with UK is "very close"
- Germany August factory orders +2.0% vs +0.8% m/m expected
- Germany August PPI +0.3% vs +0.2% m/m expected
- Japan August preliminary leading indicator index 104.4 vs 104.2 expected
- Will the EU call out Italy's bluff on the budget deficit plan?
Markets:
- GBP leads, CHF lags on the day
- European equities lower, Italy leads losses
- US 10-year yields up 1.5 bps to 3.202%
- Gold up 0.22% to $1,202.55
- WTI up 0.26% to $74.52
- Bitcoin down 0.19% to $6,533
The session started off with the kind of lull that accompanies pre-nonfarm payrolls trading and aside from a minor jolt in the pound there wasn't much else really. The market is positioning itself for a better report to come later and that kept the dollar steady and somewhat bid during the session. Adam had a good primer on why that is the case overnight here.
European equities traded tepidly early on but were later on dragged lower as Italian bonds started to slump as budget worries resurfaced. However, US equity futures remain rather unchanged on the day as the focus remains on the jobs report later at 1230 GMT to provide the spark for Treasury yields and equities - which will in turn drive risk sentiment in currencies trading.
EUR/USD started the session around 1.1505 before steadily moving lower as the dollar stayed bid and reached a low of 1.1487 as Italy's budget worries weighed on the single currency a little. But the pair clawed back some of those losses to trade around the 1.1500 handle currently but still only in a 33 pips range for the day.
GBP/USD was one of the more livelier pairs as the pound caught a bid from a Reuters report saying that a Brexit deal was "very close". Cable started the session around 1.3010 before jumping up to a high of 1.3060 where price stalled upon hitting the 200-hour MA. The pound's advance also saw EUR/GBP fall to 3-month lows. But as the session moved along, the quid gave back some of those gains and cable still trades higher but at around 1.3040 currently.
USD/JPY was one of the more subdued pairs as traders continue to wait out the US jobs report to see the impact it has on yields and equities before reacting. The pair trades in a narrow range between 113.80 to 113.95 so far this session.
Commodity currencies mostly traded lower against the dollar as higher yields continued to weigh on the aussie and kiwi while the dollar being underpinned ahead of the key data release later helped the greenback to advance against the kiwi too.
But as we head into US trading, the dollar is giving back some of those gains with AUD/USD flat on the day at 0.7076 after having fallen to a low of 0.7054 earlier. NZD/USD trades similarly paring some of its earlier losses to trade at 0.6470 now after having hit a low of 0.6459. And USD/CAD is flat after having traded around 1.2930 levels for the most part.
All the anticipation right now is on the US jobs report but in the aftermath, the first thing to watch out for is the reaction in Treasury yields. That will eventually feed into equities sentiment and in turn will drive risk/market sentiment for currencies as well. But also don't forget the initial dollar reaction to the data as well. It's a little bit more of a tricky day in trading but remember to stay focused on the trading theme that is hogging the spotlight now and that is rising Treasury yields. Let's see if the payrolls data will add to that rhetoric or threaten to derail it.
