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Europe Roundup: Sterling rallies above 1.2400 on Brexit deal hopes, gold set for third weekly decline, investors eye U.S. retail sales - Friday, September 13th, 2019

Markets Roundup

  • France proposes 'growth compact' for eurozone after ECB stimulus
  • German economy not heading for pronounced recession - ministry
  • Oil slips toward $60 on demand worries
  • Euro surges gains on ECB stimulus

Economic Data Ahead

  • (0830 ET/1230 GMT) The U.S. Commerce Department is expected to report that retail sales edged up 0.2 percent in August after advancing 0.7 percent in July. While excluding autos, retail sales are likely to have gained 0.1 percent, after surging 1.0 percent in the previous month.
  • (0830 ET/1230 GMT) The U.S. Labor Department publishes import and export prices index for the month of August. The import prices are likely to have declined 0.4 percent after rising 0.2 percent in July, while exports are expected to have edged down 0.2 percent after increasing 0.2 percent in the prior month.
  • (1000 ET/1400 GMT) The University of Michigan is likely to report that U.S. preliminary consumer sentiment index rose to 90.9 in September from a final reading of 89.8 in August.
  • (1000 ET/1400 GMT) The U.S. Commerce Department is expected to report that business inventories rose 0.3 percent in July, after staying flat in June.
  • (1300 ET/1700 GMT) Baker Hughes reports U.S. Oil Rig Count. 

Key Events Ahead

  • No significant events scheduled

FX Beat

DXY: The dollar index plunged, extending previous session losses, as the U.S. Federal Reserve is widely expected to cut interest rates next week.  The greenback against a basket of currencies traded 0.3 percent down at 98.03, having touched a low of 97.86 on Wednesday, its lowest since August 2

EUR/USD: The euro rose to a 2-1/2 week peak as German government bond yields surged on the back of investors thinking the European Central Bank was done stimulating the ailing eurozone economy after cutting rates on Thursday. However, the upside is limited as concerns linger about the extent to which the central bank’s stimulus can boost economic growth or stop Germany from slipping into recession. The European currency traded 0.3 percent up at 1.1100 in the prior session, having touched a high of 1.1109 earlier, its highest since August 27. Immediate resistance is located at 1.1116 (August 27 High), a break above targets 1.1153 (August 23 High). On the downside, support is seen at 1.1037 (5-DMA), a break below could drag it below 1.0963 (August 30 High).

USD/JPY: The dollar declined, halting a 4-day losing streak, as investors turned cautious after U.S. President Donald Trump stated that he preferred a comprehensive trade deal with China but did not rule out the possibility of an interim pact, even as he said an easy agreement would not be possible. The major was trading 0.1 percent down at 108.10, having hit a high of 108.25 earlier, its highest since August 1. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. retail sales, import and export price index and business inventories. Immediate resistance is located at 108.37 (July 16 High), a break above targets 108.75 (July 25 High). On the downside, support is seen at 107.51 (5-DMA), a break below could take it lower at 106.92 (10-DMA).

GBP/USD: Sterling rallied above the 1.2400 handle to a hit a fresh 7-week peak, amid speculations that the Democratic Unionist Party will support a mild change in Irish backstop. The major traded 1.05 percent up at 1.2458, having hit a high of 1.2475 earlier, it’s highest since July 25. Investors’ attention will remain on the development surrounding Brexit, ahead of the U.S. fundamental drivers. Immediate resistance is located at 1.2481 (July 23 High), a break above could take it near 1.2520 (July 16 High). On the downside, support is seen at 1.2279 (September 6 Low), a break below targets 1.2252 (10-DMA). Against the euro, the pound was trading 0.6 percent at 89.13 pence, having hit a high of 88.85 on Thursday, it’s highest since June 21.

USD/CHF: The Swiss franc rose to a 1-week peak, as bigger-than-expected stimulus increased pressure on the U.S. Federal Reserve and the Bank of Japan to ease policy next week to support the world economy. The major trades 0.4 percent down at 0.9860, having touched a high of 0.9946 on Tuesday, it’s highest since August 1. 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 0.9842 (21-DMA), and any close below that level will drag it till 0.9813 (August 22 Low).

Equities Recap

European shares gained as signs of progress in U.S.-China trade talks boosted investor risk sentiment.

The pan-European STOXX 600 index surged 0.2 percent at 391.06 points, while the FTSEurofirst 300 surged 0.1 percent to 1,535.84 points.

Britain's FTSE 100 trades 0.1 percent down at 7,337.58 points, while mid-cap FTSE 250 gained 0.5 to 20,054.04 points.

Germany's DAX rose 0.5 percent at 12,464.55 points; France's CAC 40 trades 0.4 percent higher at 5,665.77 points.

Commodities Recap

Crude oil declined as concern about a slowdown in the global economy and oil demand outweighed hints of progress in the U.S.-China trade dispute. International benchmark Brent crude was trading 0.5 percent lower at $60.08 per barrel by 0948 GMT, having hit a low of $58.89 on Thursday, its lowest since September 4. U.S. West Texas Intermediate was trading 0.4 percent down at $54.86 a barrel, after falling as low as $53.99 on Thursday, its lowest since September 4.

Gold prices rose as monetary easing uncertainties by major central banks supported safe-haven assets. Spot gold rose 0.5 percent to $1,506.77 per ounce by 0951 GMT, having touched a low of $1,483.22 on Wednesday, its lowest since August 13 and was down about 0.3 percent so far this week, putting it on course for a third straight weekly drop. U.S. gold futures rose 0.3 percent to $1,511.40 per ounce.

Treasuries Recap

The Euro zone, German, French and Dutch 10-year bond yields all rose to six-week highs. Germany’s 10-year bond yield rose as high as -0.48 percent and was set for its biggest weekly jump since early 2018. 30-year bond yields were back in positive territory. Italy’s 10-year bond yield, which fell to a record low of 0.758 percent on Thursday, was 6 bps higher at 0.91 percent.

The Japanese government bond yields jumped across the curve, with the key 10-year yield hitting the highest level in six weeks. The 10-year JGB yield climbed 5 basis points to minus 0.165 percent, its highest since Aug. 1. In the super long zone, the 20-year yield rose 4.5 bps to 0.200 percent, while the 30-year and the 40-year yields jumped 5 bps each to six-week highs of 0.340 percent and 0.370 percent, respectively. Benchmark 10-year JGB futures fell 0.57 point to 154.07.

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