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Europe Roundup: Sterling at 2-month peak on Brexit deal hopes and upbeat UK inflation, Swiss franc eases as risk-off sentiment ebbs, European shares rally - Wednesday, September 19th, 2018

Market Roundup

  • EUR/USD 0.26%, USD/JPY 0.01%, GBP/USD 0.24%, EUR/GBP -0.05%
     
  • DXY -0.2%, DAX 0.2%, FTSE 0.01%, Brent flat, Gold 0.43%
     
  • Great Britain CPI (y/y), 2.7%, 2.4% forecast, 2.5% previous
     
  • Great Britain Core CPI (y/y), 2.1%, 1.8% forecast, 1.9% previous
     
  • Great Britain RPI (y/y), 3.5%, 3.2% forecast, 3.2% previous
     
  • BOJ's Kuroda warns of trade perils, echoes Abe on exiting easy policy
     
  • China won't weaken currency to boost exports, premier says
     
  • Bank of England's Haldane says firms' Brexit worries "up sharply"
     
  • Korea summit economic pledge raises sanctions-busting fears

Economic Data Ahead
 

  • (0830 ET/1230 GMT) The U.S. Department of Commerce is expected to report that housing starts increased to a rate of 1.235 million units in August from a 1.168 million unit pace in July.
     
  • (0830 ET/1230 GMT) The U.S. building permits are likely to have increased to a 1.310 million-unit pace in August from a 1.303 million-unit pace in July.
     
  • (0830 ET/1230 GMT) The U.S. Commerce Department is likely to report that current account deficit contracted to $103.5 billion in the second quarter from $124.1 billion in the previous quarter.
     
  • (1030 ET/1430 GMT) The Energy Information Administration (EIA) reports its Crude Oil Stocks for the week ending September 14.
     
  • (1700 ET/2100 GMT) The Brazilian central bank will meet to set its benchmark Selic rate and is expected to keep interest rates on hold at 6.50 percent.
     

Key Events Ahead

  • (0900 ET/1300 GMT) European Central Bank (ECB) President Mario Draghi gives a speech. 

FX Beat

DXY: The dollar index consolidated within narrow ranges, as the deepening tariff war between the United States and China threatened to disrupt supply chains and undermine the world economy. The greenback against a basket of currencies trades flat at 94.59, having touched a low of 94.32, its lowest since July 31. FxWirePro's Hourly Dollar Strength Index stood at -32.09 (Neutral) by 1000 GMT.

EUR/USD: The euro surged after data showed Eurozone construction output rose at an annual rate of 2.6 percent in July, surpassing estimate of 1.7 percent. The European currency traded 0.2 percent up at 1.1690, having touched a high of 1.1724 on Tuesday, its highest since Aug 28. FxWirePro's Hourly Euro Strength Index stood at 5.67 (Neutral) by 1000 GMT. Immediate resistance is located at 1.1718 (August 30 High), a break above targets 1.1747 (July 31 High). On the downside, support is seen at 1.1584 (August 31 Low), a break below could drag it till 1.1542 (September 5 Low)

USD/JPY: The dollar rallied to a fresh 2-month peak after China said it won't retaliate with competitive currency devaluations. Risk appetite held up across markets as the latest round of tariffs announced by the United States and China were not as severe as the market anticipated. The major was trading 0.05 percent up at 112.40, having hit a high of 112.44 earlier, its highest since July 20. FxWirePro's Hourly Yen Strength Index stood at -68.68 (Bearish) by 1000 GMT. Investors’ will continue to track broad-based market sentiment, ahead of the U.S. Housing Starts, building permits and current account figures. Immediate resistance is located at 112.62 (July 12 High), a break above targets 112.92 (July 17 High). On the downside, support is seen at 111.88 (5-DMA), a break below could take it lower 111.66 (September 18 Low).

GBP/USD: Sterling advanced to a 2-month peak after data showed British inflation climbed unexpectedly to a 6-month high in August, boosted by bigger-than-usual seasonal increases in the sea and air fares. Investors now await the European Union summit in Salzburg on Wednesday and Thursday, where diplomats will try to pave the way for an agreement on Brexit. The major traded 0.3 percent up at 1.3184, having hit a high of 1.3215 earlier; it’s highest since July 20. FxWirePro's Hourly Sterling Strength Index stood at 7.40 (Neutral) 1000 GMT. Immediate resistance is located at 1.3244 (July 12 High), a break above could take it near 1.3274 (July 5 High). On the downside, support is seen at 1.3104 (5-DMA), a break below targets 1.3032 (10-DMA). Against the euro, the pound was trading 0.1 percent up at 88.66 pence, having hit a high of 88.61 earlier, it’s highest since August 2.

USD/CHF: The Swiss franc eased to a 6-day low as risk-on trade sentiment returned to the market. The major trades 0.5 percent up at 0.9691, having touched a low of 0.9600 the day before. it’s lowest since April 17. FxWirePro's Hourly Swiss Franc Strength Index stood at -137.77 (Highly Bearish) by 1000 GMT. On the higher side, near-term resistance is around 0.9702 (38.2% retracement of 0.9865 and 0.9600) and any break above will take the pair to next level till 0.9734 (50.0% retracement). The near-term support is around 0.9585 and any close below that level will drag it till 0.9553.

Equities Recap

European shares rose, boosted by gains in trade-sensitive materials and auto stocks, while sterling rallied on strong UK inflation data and hopes about progress towards a Brexit deal.

The pan-European STOXX 600 index rallied 0.1 percent at 379.21 points, while the FTSEurofirst 300 index surged 0.1 percent to 1,482.02 points.

Britain's FTSE 100 trades 0.05 percent up at 7,303.72 points, while mid-cap FTSE 250 gained 0.2 percent to 20,499.94 points.

Germany's DAX rose 0.3 percent at 12,198.70 points; France's CAC 40 trades 0.3 percent higher at 5,381.60 points.

Commodities Recap

Crude oil prices eased, as an increase in U.S. inventories outweighed concerns that producers may fail to cover a shortfall in supply once U.S. sanctions on Iran come into effect. International benchmark Brent crude was trading 0.05 percent down at $78.80 per barrel by 1029 GMT, having hit a high of $79.69 on Tuesday, its highest since September 12. U.S. West Texas Intermediate was trading 0.05 percent up at $69.72 a barrel, after rising as high as $70.40 on Tuesday, its highest since September 12.

Gold prices surged as the greenback softened, with markets showing little worry over the latest escalation in the U.S.-China trade war. Spot gold rose 0.4 percent to $1,203.02 an ounce by 1031 GMT, having hit a high of $1212.55 on Thursday, its highest since Aug. 28. U.S. gold futures were up 0.3 percent at $1,207 an ounce.

Treasuries Recap

The U.S. Treasuries suffered ahead of the August housing starts figures, which might show a pick-up in both single-family and multi-family categories, and the Q2 current account, are due for release, today as well. The yield on the benchmark 10-year Treasuries rose 1 basis point to 3.0557 percent, the super-long 30-year bond yields 1/2 basis point higher at 3.201 percent and the yield on the short-term 2-year traded tad higher at 2.803 percent.

The United Kingdom’s gilts traded tad lower during European session after the country’s consumer price inflation (CPI) data for the month of August beat market estimates, higher than the reading in July as well. The yield on the benchmark 10-year gilts, rose nearly 1/2 basis point to 1.573 percent, the super-long 30-year bond yields also remained tad 1/2 basis point higher at 1.916 percent and the yield on the short-term 2-year traded flat at 0.828 percent.

The Japanese government bond prices remained nearly flat after the Bank of Japan (BoJ) in its 2-day bi-monthly monetary policy meeting, kept interest rate unchanged, as was widely anticipated by market participants. The yield on the benchmark 10-year JGB note, which moves inversely to its price, remained nearly 1/2 basis point higher at 0.118 percent, the yield on the long-term 30-year note flat at 0.851 percent and the yield on short-term 2-year hovered around -0.104 percent.

The Australian 10-year government bond yield surged to a 1-1/2 month high during Asian session following a heavy sell-off in the United States counterpart. The yield on Australia’s benchmark 10-year note, which moves inversely to its price, jumped nearly 5 basis points to 2.715 percent, the yield on the long-term 30-year bond also surged 5 basis points to 3.210 percent and the yield on short-term 2-year too climbed 5 basis points to 2.125 percent.

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