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Europe Roundup: Sterling rallies as EU Barnier's comments stoke Brexit deal hopes, euro plunges as German investor sentiment deteriorates, European shares surge - Tuesday, October 15th, 2019

Market Roundup

  • EU's Barnier: talks are difficult but Brexit deal still possible
     
  • German investor sentiment falls less than expected in October
     
  • UK hiring falls by most in over four years
     

Economic Data Ahead

  • N/A The U.S. reports its monthly budget statement for the month of September. The government posted a deficit of $200 billion in the previous month.

Key Events Ahead

  • (0830 ET/1230 GMT) Bank of England  Monetary Policy Committee member Dr Gertjan Vlieghe's speech

FX Beat

DXY: The dollar index rose after a Bloomberg report, citing sources, said China wants more talks as early as the end of October to decide on the details of the Phase 1 deal before Chinese President Xi Jinping agrees to sign it. The greenback against a basket of currencies traded flat at 98.47, having touched a low of 98.20 on Friday, its lowest since September 20.

EUR/USD: The euro declined, extending previous session losses after data showed German investor sentiment worsened in October amid concern that the economy might be headed for a recession. The European currency traded down at 1.1029, having touched a high of 1.1062 on Friday, its highest since September 20. Immediate resistance is located at 1.1059 (78.6% retracement of 1.1109 and 1.0879), a break above targets 1.1084. On the downside, support is seen at 1.0998 (5-DMA), a break below could drag it below 1.0979 (10-DMA).

USD/JPY: The dollar slumped after rising for four straight sessions amid fading optimism over the latest China-U.S. trade truce. The major was trading 0.2 percent down at 108.20, having hit a high of 108.62 on Friday, its highest since August 1. Investors’ will continue to track the broad-based market sentiment, as the U.S. economic calendar remains absolutely data empty. Immediate resistance is located at 108.72 (June 17 High), a break above targets 108.99 (July 31 High). On the downside, support is seen at 107.86 (5-DMA), a break below could take it near at 107.31 (September 23 Low)

GBP/USD: Sterling surged after the European Union’s chief Brexit negotiator, Michel Barnier, said a deal with Britain to cover its departure from the EU was still possible this week. The major traded 0.4 percent up at 1.2597, having hit a high of 1.2706 on Friday, it’s highest since June 28. Investors’ attention will remain on the development surrounding Brexit,  ahead of the U.S. fundamental drivers. Immediate resistance is located at 1.2710, a break above could take it near 1.2762. On the downside, support is seen at 1.2515, a break below targets 1.2459. Against the euro, the pound was trading 0.5 percent up at 87.03 pence, having hit a high of 86.94 on Friday, it’s highest since May 15

USD/CHF: The Swiss franc declined to a near 2-week low as risk sentiment improved after the European Union’s chief Brexit negotiator Michel Barnier's comments eased no-deal Brexit fears. The major trades 0.1 percent up at 0.9972, having touched a high of 0.9995 earlier, it’s highest since October 4. On the higher side, near-term resistance is around 1.0006 and any break above will take the pair to the next level till 1.0027. The near-term support is around 0.9924, and any close below that level will drag it till 0.9885.

Equities Recap

European shares rallied to 2-week highs as investors cheered comments from the EU’s chief Brexit negotiator that a deal with Britain over the terms of their separation was still possible this week.

The pan-European STOXX 600 index rallied 0.4 percent at 391.09 points, while the FTSEurofirst 300 surged 0.3 percent to 1,534.43 points.

Britain's FTSE 100 trades 0.4 percent down at 7,183.80 points, while mid-cap FTSE 250 surged 0.1 to 19,950.47 points.

Germany's DAX rose 0.5 percent at 12,543.06 points; France's CAC 40 trades 0.6 percent higher at 5,674.69 points.

Commodities Recap

Crude oil prices declined, extending previous session losses following two days of weak Chinese data, while investors continued to remain cautious over prospects for a U.S.-China trade deal. International benchmark Brent crude was trading 1.4 percent down at $58.37 per barrel by 1034 GMT, having hit a high of $60.66 on Friday, its highest since September 30. U.S. West Texas Intermediate was trading 1.4 percent lower at $52.69 a barrel, after rising as high as $54.91 on Friday, its highest since September 30.

Gold prices rose as optimism surrounding U.S.-China trade talks faded and investors awaited the outcome of crucial discussions that will determine how Britain leaves the European Union. Spot gold was trading 0.3 percent to $1,497.60 per ounce by 1036 GMT, having touched a low of $1,473.88 on Friday, its lowest since October 1. U.S. gold futures were 0.2 percent lower at $1,494.80 per ounce.

Treasuries Recap

The U.S. Treasuries recovered during the afternoon session amid a muted trading day that witnessed data of little economic significance after returning from a long weekend ahead of the country’s retail sales for the month of September, scheduled to be released on October 16 by 12:30GMT. The yield on the benchmark 10-year Treasury yield plunged 6-1/2 basis points to 1.687 percent, the super-long 30-year bond yield slumped 5 basis points to 2.164 percent and the yield on the short-term 2-year plummeted nearly 7 basis points to 1.547 percent.

 The United Kingdom’s gilts jumped during European trading hours after the country’s employment report for the month of August disappointed market sentiments, while eyes still remain on the consumer price inflation (CPI) for the month of September, scheduled to be released tomorrow for further insight into the debt market. The yield on the benchmark 10-year gilts, slipped nearly 1 basis point to 0.632 percent, the 30-year yield also edged 1 basis point down to 1.102 percent while the yield on the short-term 2-year remained steady at 0.503 percent.

 The German bunds remained narrowly mixed during European session of the second trading day of the week after the country’s ZEW economic sentiment index for the month of October, improved, while investors still eye the eurozone’s consumer price inflation (CPI) for the month of September, due for release on October 16 by 09:00GMT for further direction in the debt market. The German 10-year bond yield, which move inversely to its price, hovered around -0.466 percent, the yield on 30-year note slipped slightly to 0.027 percent and the yield on short-term 2-year remained flat at -0.688 percent.

The Australian government bonds jumped during Asian trading session after the Reserve Bank of Australia’s (RBA) September monetary policy meeting minutes hinted at further easing, noting "prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time". The yield on Australia’s benchmark 10-year note, which moves inversely to its price, plunged 3-1/2 basis points to 1.013 percent, the yield on the long-term 30-year bond also slumped 3-1/2 basis points to 1.600 percent and the yield on short-term 2-year traded nearly 2 basis points lower at 0.703 percent.

By Lactus Fernandes
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