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Europe Roundup: Sterling eases on Brexit concerns, euro at 5-month low as Italy worries persist, European shares trade in red - Friday, May 18th, 2018

Market Roundup

  • EUR/USD -0.11%, USD/JPY 0.20%, GBP/USD -0.24%, EUR/GBP 0.11%
     
  • DXY 0.14%, DAX -0.04%, FTSE -0.17%, Brent 0.39%, Gold -0.25%
     
  • China denies it has offered a $200 bln package to slash U.S. trade gap
     
  • Euro zone exports and imports decline in March
     
  • Italy anti-system parties ink deal to govern, seek review of EU rules
     
  • Oil prices set for sixth week of gains, India sounds alarm
     
  • EZ Mar Eurostat Trade NSA, Eur, 26.9 bln, 18.9 bln previous
     
  • EZ Mar Current Account SA, EUR, 32.0 bln, 36.8 bln previous (r)
     
  • EZ Mar Current Account NSA, EUR, 40.6 bln, 24.2 bln previous (r)
     
  • Germany Apr Producer Prices YY, 2.0%, 1.8% forecast, 1.9% previous
     
  • Germany Apr Wholesale Price Index YY, 1.4%, 1.2% previous

Economic Data Ahead

  • (0830 ET/1230 GMT) Statistics Canada is expected to report that retail sales gained 0.3 percent in March after rising 0.3 percent in February. While excluding autos, retail sales are likely to have risen 0.5 percent, after staying flat in the previous month.
     
  • (0830 ET/1230 GMT) The Statistics Canada is expected to report that annual inflation rate remained at 2.3 percent in April, closer to the Bank of Canada’s 2 percent target.
     
  • (1300 ET/1700 GMT) Baker Hughes reports U.S. Oil Rig Count. 

Key Events Ahead

  • (0915 ET/1315 GMT) Federal Reserve Board Governor Lael Brainard is scheduled to speak on "Community Reinvestment Act Modernization" before the Association for Neighborhood and Housing Development's 8th Annual Community Development Conference, in New York
     
  • (0915 ET/1315 GMT) Federal Reserve Bank of Dallas President Robert Kaplan is likely to participate in a moderated question-and-answer session before the 12th Annual University of Texas at Dallas Project Management Symposium, in Richardson, Texas

FX Beat

DXY: The dollar index rallied to a 5-month peak as the U.S. 10-year Treasury yield hit highest since June 2011 of 3.12 percent on expectations of aggressive Federal Reserve monetary policy tightening. The greenback against a basket of currencies trades 0.2 percent up at 93.62, having touched a high of 93.64, its highest since Dec. 19.

EUR/USD: The euro fell towards 5-month lows after data showed Eurozone's imports and exports declined in March, indicating that trade tensions may be reining in global commerce. The economy's exports of goods fell by 2.9 percent, while imports were 2.5 percent lower than a year ago. Moreover, political uncertainty in Italy continued to dampen investors' risk sentiment. The European currency traded 0.1 percent down at 1.1778, having touched a low of 1.1763 on Tuesday, its lowest since Dec. 18. Immediate resistance is located at 1.1860 (5-DMA), a break above targets 1.1978 (May 7 High). On the downside, support is seen at 1.1763 (May 16 Low), a break below could drag it till 1.1736 (Dec. 18 Low).

USD/JPY: The dollar advanced to a near 5-month peak, supported by a continuous climb in the U.S. Treasury bond yields and as weaker than expected Japanese National Core CPI reaffirmed that the Bank of Japan will stick to its ultra-loose monetary policy stance. Moreover, improving investors' appetite for riskier assets weighed on the safe-haven Japanese Yen. The major was trading 0.2 percent up at 111.01, having hit a high of 111.03 earlier, its highest since Jan. 23. FxWirePro's Hourly Yen Strength Index stood at -120.46 (Highly Bearish) by 0900 GMT. Investors’ will continue to track broad-based market sentiment, ahead of the Federal Open Market Committee’s (FOMC) members Brainard and Kaplan’s speech. Immediate resistance is located at 111.48 (Jan. 18 High), a break above targets 111.87 (Jan. 11 High). On the downside, support is seen at 110.09 (5-DMA), a break below could take it lower 109.69 (10-DMA).

GBP/USD: Sterling slumped as concerns about whether Britain would stay in the European Union's customs union after Brexit weighed on the British currency. Moreover, renewed U.S. Dollar buying interest prompted some fresh selling in the major. Sterling traded 0.1 percent down at 1.3494, having hit a low of 1.3451 on Tuesday, it’s lowest since Dec. 29. Immediate resistance is located at 1.3608, a break above could take it near 1.3665. On the downside, support is seen at 1.3428, a break below targets 1.3405. Against the euro, the pound was trading 0.1 percent down at 87.32 pence, having hit a high of 87.13 pence the day before, it’s highest since Apr. 27.

USD/CHF: The Swiss franc slightly edged up as investors awaited the Federal Open Market Committee’s (FOMC) members Brainard and Kaplan’s speech for further clues on the strength of the U.S. economy. The major trades 0.1 percent down at 1.0002, having touched a low of 0.9957 on Monday, it’s lowest since May. 3. FxWirePro's Hourly Swiss Franc Strength Index stood at 155.75 (Highly Bullish) by 0900 GMT. On the higher side, near-term resistance is around 1.0056 (May 10 High) and any break above will take the pair to next level till 1.0099 (May 2017 High). The near-term support is around 0.9936 and any close below that level will drag it till 0.9899.

Equities Recap

European shares declined in early deals but were set for eight straight weeks of gains, supported by a surge in energy shares, while the euro eased as investors grew wary that a government accord between two anti-establishment parties could reduce fiscal discipline in Italy.

The pan-European STOXX 600 index slumped 0.3 percent at 394.54 points, while the FTSEurofirst 300 index plunged 0.3 percent to 1,548.21 points.

Britain's FTSE 100 trades 0.1 percent down at 7,580.20 points, while mid-cap FTSE 250 eased 0.2 percent to 20,986.21 points.

Germany's DAX fell 0.2 percent at 13,094.40 points; France's CAC 40 trades 0.3 percent higher at 5,605.49 points.

Commodities Recap

Crude oil prices held gains near multi-year highs on strong demand, ongoing supply cuts led by producer cartel OPEC and looming U.S. sanctions against Iran. International benchmark Brent crude was trading 0.2 percent up at $79.61 per barrel by 0911 GMT, having hit a high of $80.47 on Thursday, its highest since Nov. 2014. U.S. West Texas Intermediate was trading 0.1 percent up at $71.61 a barrel, after rising as high as $72.28 on Thursday, its highest since Nov. 2014.

Gold prices declined, hovering towards their lowest levels this year, undermined by a strong U.S. dollar amid surging U.S. Treasury yields. Spot gold was 0.1 percent down at $1,288.37 per ounce at 0915 GMT, having hit a low of $1,285.04 on Thursday, its lowest price level since Dec. 27 and was heading for its biggest weekly decline since early December. U.S. gold futures for June delivery were 0.1 percent lower at $1,288.60 per ounce.

Treasuries Recap

The U.S. Treasuries remained tad higher ahead of the Federal Open Market Committee’s (FOMC) members Brainard and Kaplan’s speech scheduled for today at 13:15GMT respectively. The yield on the benchmark 10-year Treasuries slid 1 basis point to 3.10 percent, the super-long 30-year bond yields also slipped slightly to 3.23 percent and the yield on the short-term 2-year traded 1-1/2 basis points lower at 2.55 percent.

The German bunds gained on the last trading day of the week after eurozone’s trade balance disappointed market expectations, although the better-than-expected producer price index for the month of April cushioned further gains to the debt basket. The German 10-year bond yields, which move inversely to its price, fell 1/2 basis point to 0.63 percent, the yield on 30-year note hovered around 1.33 percent and the yield on short-term 2-year traded flat at -0.55 percent.

The Japanese government bonds remained tad lower during late Asian session as investors have largely shrugged-off the country’s lower-than-expected national core consumer price inflation (CPI) data, late yesterday. The yield on the benchmark 10-year JGB note, which moves inversely to its price, remained tad higher at 0.06 percent, the yield on the long-term 30-year note rose 1/2 basis point to 0.76 percent and the yield on short-term 1-year remained nearly steady at -0.12 percent.

The Australian government bonds slumped across the curve on last trading of the week tracking heaving sell-off in the U.S. Treasuries. The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, rose 2-1/2 basis points to 2.935 percent (14-month high), the yield on the long-term 30-year Note also jumped 2-1/2 basis points to 3.418 percent and the yield on short-term 2-year up 1-1/2 basis points to 2.072 percent.

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