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Europe Roundup: Sterling at 1-month peak as UK economy shows unexpected strength, euro rallies as EZ investor morale improves, European shares surge - Monday, September 9th, 2019

Market Roundup

  • Bank of England's Vlieghe warns of risks from new stimulus ideas
  • New Saudi energy minister: OPEC+ alliance staying for long term
  • UK's Johnson again bids for the snap poll as Brexit delay bill to become law
  • UK economy shows unexpected strength in July
  • Eurozone investor morale improves slightly in September

Economic Data Ahead

  • (1500 ET/1900 GMT) The U.S. Federal Reserve is likely to report that consumer credit rose to $16.0 billion in July from $14.6 billion the month before.

Key Events Ahead

  • No significant events scheduled

FX Beat

DXY: The dollar index surged as Fed Chair Powell’s comments and a mixed U.S. employment report firmed market expectations that the Fed would cut interest rates at its meeting later this month. The greenback against a basket of currencies traded 0.4 percent up at 98.38, having touched a low of 98.01 on Friday, its lowest since August 28.

EUR/USD: The euro rose, halting a 2-day losing streak after data showed investor morale in the eurozone improved slightly in September. However, the upside is limited as investors remained convinced the European Central Bank would introduce a new wave of monetary policy stimulus at its meeting on Thursday. The European currency traded 0.1 percent up at 1.1030, having touched a high of 1.1084 on Thursday, its highest since August 29. Immediate resistance is located at 1.1060 (August 30 High), a break above targets 1.1116 (August 27 High). On the downside, support is seen at 1.1000, a break below could drag it below 1.0963 (August 30 High).

USD/JPY: The dollar surged above the 107.00 handle, supported by comments from Federal Reserve Chair Jerome Powell that the U.S. central bank would continue to act as appropriate to sustain the economic expansion. Moreover, optimism that China would withstand the impact of trade disputes with the United States boosted the bid tone around the pair. The major was trading 0.1 percent up at 107.02, having hit a high of 107.23 on Thursday, its highest since August 2. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. consumer credit change. Immediate resistance is located at 107.56 (August 2 High), a break above targets 108.00. On the downside, support is seen at 106.46 (5-DMA), a break below could take it lower at 105.73 (September 3 Low).

GBP/USD: Sterling rallied to an over 1-month peak after data showed Britain’s economy expanded more than expected in July, dampening fears that it will succumb to its first recession since the financial crisis as the Brexit crisis escalates. However, concerns whether the British parliament would vote to hold an early general election before the October 31 Brexit deadline limited the upside. The major traded 0.6 percent higher at 1.2365, having hit a high of 1.2383 earlier, it’s highest since July 29. Investors’ attention will remain on the development surrounding Brexit, ahead of the U.S. fundamental drivers. Immediate resistance is located at 1.2400, a break above could take it near 1.2456 (July 17 High). On the downside, support is seen at 1.2205 (10-DMA), a break below targets 1.2139 (August 30 Low). Against the euro, the pound was trading 0.6 percent up at 89.15 pence, having hit a high of 89.08 earlier, it’s highest since July 25.

USD/CHF: The Swiss franc fell to a near 1-week low, as risk appetite improved after China’s central bank cut reserve requirements for a seventh time since early 2018, releasing liquidity to boost an economy slowed by the U.S.-China trade conflict. The major trades 0.4 percent up at 0.9913, having touched a high of 0.9917 on Friday, it’s highest since Sept. 3. On the higher side, near-term resistance is around 0.9949 (July 31 High) and any break above will take the pair to next level till 0.9975 (August 1 High). The near-term support is around 0.9860 (5-DMA), and any close below that level will drag it till 0.9813 (August 22 Low).

Equities Recap

European shares advanced as investors pinned their hopes on expected global stimulus from the world’s central banks to support slowing growth.

The pan-European STOXX 600 index rallied 0.3 percent at 387.43 points, while the FTSEurofirst 300 surged 0.1 percent to 1,523.94 points.

Britain's FTSE 100 trades 0.5 percent down at 7,249.25 points, while mid-cap FTSE 250 fell 0.05 to 19,695.69 points.

Germany's DAX rose 0.4 percent at 12,234.08 points; France's CAC 40 trades 0.05 percent higher at 5,605.45 points.

Commodities Recap

Crude oil prices rose after Saudi Arabia named oil veteran Prince Abdulaziz bin Salman as its new energy minister, a move seen strengthening an output-cutting deal between OPEC and other producers.  International benchmark Brent crude was trading 0.4 percent higher at $61.82 per barrel by 1029 GMT, having hit a high of $62.37 on Thursday, its highest since August 2. U.S. West Texas Intermediate was trading 0.4 percent up at $56.85 a barrel, after rising as high as $57.72 on Thursday, its highest since August 1.

Gold prices steadied, halting a 2-day losing streak, amid policy easing expectations by major central banks and soft economic data. Spot gold gained 0.2 percent to $1,510.03 per ounce by 1031 GMT, having touched a low of $1,502.46 on Friday, its lowest since August 23. U.S. gold futures dipped 0.1 percent to $1,514.1 an ounce.

Treasuries Recap

The Longer-dated euro zone government bond yields ticked higher ahead of a policy meeting this week at the ECB. Germany’s 30-year government bond was up 4 bps to -0.07 percent, edging closer to positive territory. The 10-year benchmark was up 2 bps to -0.61percent.

The Japanese government bonds gained at close of morning Asian session after the country’s gross domestic product (GDP) for the second quarter of this year expanded less than that in the previous quarter amid hovering uncertainties over U.S.-China trade talks. At close, the yield on the benchmark 10-year JGB note, which moves inversely to its price, plunged 25 basis points to -0.254 percent, the yield on the long-term 30-year hovered around 0.198 percent and the yield on short-term 2-year slumped 31 basis points to -0.312 percent.

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