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Europe Roundup: Sterling recovers after declining on Weale's dovish comments, oil price hits 2-1/2 month low, European shares edge down - Tuesday, July 26th, 2016

Market Roundup

  • GBP/USD -0.0011%, USD/JPY -1.4%, EUR/USD +0.11%
     
  • Yen surges, oil dips with eyes on central banks
     
  • Japan to double fiscal stimulus to Y6tn – Nikkei
     
  • Japan's Fin Min Aso welcomes G20 support for FX market stability
     
  • Japan Econ Min Ishihara: Structural-fiscal reforms needed
     
  • Ishihara: Need to link wages to economic growth
     
  • Japan June corporate service price index to 103.0, +0.2% y/y, +0.2% previous
     
  • Investors flocking back to export-based Japan stocks – Nikkei
     
  • Corporate Japan's pension obligations hit all-time high – Nikkei
     
  • IMF sets new SDR calculation method to prepare for yuan’s entry – Reuters
     
  • Japan won’t reach nominal Y600tn GDP target by FY’24 even given current growth pace
     
  • New Zealand June Trade balance N$150mn vs N$358mn previous, N$125mn exp
     
  • New Zealand June Trade balance -3.3% y/y vs -3.63% previous, -3.3% exp
     
  • Bank of England's Weale shifts stance after weak UK data
     
  • Sterling slips to two-week low as BoE's Weale turns full circle
     
  • UK June BBA mortgage approvals 40,103 vs 42,187 previous
     
  • Fitch cuts South Africa's local currency debt rating
     

Economic Data Preview

  • (0900 ET/1300 GMT) The S&P Case Shiller house price index probably edged up 5.5 percent in May from 5.4 percent a year ago.
     
  • (1000 ET/1400 GMT) The Conference Board is likely to report that U.S. consumer confidence index declined to 95.9 in July from a reading of 98.0 recorded in June.
     
  • (1000 ET/1400 GMT) The U.S. Commerce Department is expected to report that single-family home sales probably increased 1.6 percent in June to a 560,000-unit pace.
     
  • (1630 ET/2030 GMT) API reports its weekly crude oil stock.

Key Events Ahead

  • (1145 ET/1545 GMT) FedTrade operation 15-year Fannie Mae / Freddie Mac, max $625mn.
     
  • (1300 ET/1700 GMT) The U.S. Federal Open Market Committee begins a 2-day meeting on interest rate policy. The Federal Reserve is likely to keep interest rates on hold, however, it might offer fresh hints about its next move on rate hike expectations.
     
  • (1430 ET/1830 GMT) FedTrade operation 30-year Ginnie Mae, max $1.275bn.

FX Beat

DXY: The dollar index, against a basket of currencies trades 0.2 percent lower at 97.08, hovering below the previous session's high of 97.57, its highest since March.

EUR/USD: The euro trimmed gains after rising above the 1.1000 handle. The major rose as high as 1.1029 as the greenback came under renewed selling pressure, ahead of Federal Reserve 2-day policy meeting. The European currency trades around 1.1010, attempting to sustain gains above the 1.1000 level. The major support is at 1.0940 and any break below targets 1.0910/1.0870 in the short term. Technically on the higher side, major resistance is around 1.1061 (200 DMA) and any indicative break above will take the pair to next level at 1.1080 (200 DMA)/1.1100.

USD/JPY: The Japanese yen touched a near 2-week high against the dollar, as the Bank of Japan is likely to expand its asset purchases by 6 trillion yen, which is well short of market expectations of around 20-30 trillion yen. The greenback trades 1.4 percent lower at 104.31 yen, having declined to 103.99 from a high of 105.89. Investors remain remained cautious ahead of Federal Reserve monetary policy decision announcement due on Wednesday and outcome of BoJ monetary policy meeting on Friday. The short term trend is slightly weak as long as resistance 105.69 (7 day EMA) holds. The major resistance is around 105.69 and any break above confirms minor trend reversal, a jump till 106.50/107/107.50 is possible. On the lower side, minor support is around 103.50 and any break below 104 will drag the pair till 102.80/102.             

GBP/USD: Sterling recovered after declining below 1.3100 handle following Bank of England policymaker Martin Weale's dovish comments. The major struck to a 2-week low of 1.3056 after Weale stated that recent weak UK data had convinced him monetary policy should be eased immediately, in order to avoid the economy from entering into recession. Sterling trades flat at 1.3135, attempting to sustain gains above the 1.3100 level. Any break below 1.3060 confirms minor weakness, a decline till 1.3000 is possible .Technically any break above 1.31690 (21 DMA) will take the pair till 1.3191/1.3290. Against the euro, the pound trades 0.2 percent lower at 83.89 pence.

USD/CHF: The Swiss franc retreated after rising to a 1-week high against the dollar. The greenback trades 0.2 percent higher at 0.9872, hovering towards a peak of 0.9906 touched last week. The major is struggling to close below 200 DMA and any weakness can be seen only below that level. On the lower side, major support is around 0.9835 and any indicative break below 0.9835 targets 0.980/0.9760 (90 DMA)/0.9680 in the short term. The major resistance is around 0.9905 and any break above targets 0.9960/1.000.

AUD/USD: The Australian dollar extended gains above the 0.7500 handle, as investors covered short positions ahead of the economy's key inflation data and Federal Reserve 2-day policy meeting commencing  later in the day. The Aussie trades 0.8 percent higher at 0.7526, pulling away from a low of 0.7442 touched last week. Traders await Australia's quarterly CPI report, which is likely to fall to a fresh trough of 1.4 percent, supporting the case for another rate cut as early as next week. On the higher side, the major has broken minor resistance 0.7520, jump till 0.7580/0.7625 is possible. The support is around 0.7440 and break below will drag the pair till 0.7380/0.7350.

NZD/USD: The New Zealand dollar rallied, recovering almost a quarter of the RBNZ rate cut expectations-led decline amid broad based US dollar weakness. The Kiwi trades 0.9 percent higher at 0.7062, after rising as high as 0.7086, just short of 0.7100 handle. The major strengthened on the back of a profit-taking rally and New Zealand's upbeat trade balance report. Immediate resistance is located at 0.7100 handle, break above targets 0.7115/0.7140. On the lower side, support is seen at 0.6957 (Previous Session Low), break below could take it lower 0.6950.

Equities Recap

European shares edged down as markets remained cautious ahead of central bank meetings in the United States and Japan, sending the safe-haven yen higher.

MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.7 percent, touching its highest in almost a year, aided by gains in China and South Korea.

The pan-Europe's STOXX 600 declined 0.2 pct to 340.33 points, while FTSEurofirst 300 Index lost 0.2 pct at 1,342.05 points. Germany's DAX was flat at 10,196.26 points and France's CAC trades 0.4 pct lower at 4,369.49 points.

Britain's FTSE 100 rose 0.2 pct, while mid-cap FTSE 250 index gained 0.3 pct.

Tokyo's Nikkei declined 1.43 pct at 16,383.04, Australia's S&P/ASX 200 index edged down 0.06 pct at 5,530.00 points and South Korea's KOSPI 200 advanced 0.74 pct.

Shanghai composite index gained 1.1 pct at 3,050.17 points, while CSI300 index rose 1.2 pct at 3,269.59 points. Hong Kong's Hang Seng index climbed 0.6 pct at 22,129.73 points.

Commodities Recap

Crude oil price declined for the fourth consecutive session, falling below $44 a barrel, its lowest since early May, weighed down by concerns that rebalancing of the market would be delayed due to excess supply. Global benchmark Brent was trading 0.5 percent lower at $44.44 a barrel at 1014 GMT, its lowest since May 10. U.S. West Texas Intermediate crude was down 0.7 percents at $42.72, having fallen to its lowest since April earlier.

Gold price rose, reversing its previous session losses, as the dollar weakened and equities eased ahead of the U.S. Federal Reserve meeting. Spot gold was up 0.4 percent $1,321.23 an ounce at 1018 GMT, hovering away from session's low of $1,313.76.

Treasuries Recap

The US Treasuries strengthened as investors remained cautious ahead of Federal Reserve monetary policy meeting. The yield on the benchmark 10-year Treasury note fell 2 basis points to 1.551 percent and the yield on short-term 2-year note also dipped 1 basis point to 0.754 percent.

The UK gilts gained as investors as investors poured into safe-haven assets after Bank of England MPC member Martin Weale signalled that he is in favour of providing fresh stimulus for the economy. The yield on the benchmark 10-year gilts fell 2-1/2 basis points to 0.786 percent, the yield on super-long 30-year bond dipped nearly 2 basis points to 1.673 percent and the yield on short-term 2-year bonds slid 1-1/2 basis points to 0.128 percent.

The German bunds traded modestly firmer as crude oil prices hit its lowest since May following sluggish global demand and supply glut concerns. The yield on the benchmark 10-year bond fell 1 basis point to -0.047 percent, the yield on long-term 30-year note dipped 2-1/2 basis points to 0.435 percent and the yield on short-term 2-year note also slid nearly 1 basis point to -0.608 percent.

The Japanese government bonds gained as investors poured into safe-haven instruments amid losses in riskier assets including stocks and crude oil. The yield on the benchmark 10-year bonds fell nearly 2 basis point to -0.254 percent, the yield on long-term 30-year note fell 1 basis point to 0.268 percent and the short-term 2-year JGB yield dipped 1/2 basis point to -0.332 percent.

The New Zealand government bonds closed modestly higher as investors had anticipated a further easing from the Reserve Bank of New Zealand (RBNZ) in its upcoming policy meeting in the wake of rising deflationary pressure. The yield on benchmark 10-year bond slid 1 basis point to 2.235 percent, the yield on 7-year note dipped 1/2 basis point to 1.985 percent and the yield on short-term 2-year note ended 1 basis point lower at 1.870 percent.

The Australian government bonds remained nearly flat as investors were eagerly waiting for the latest second-quarter inflation figures. The yield on the benchmark 10-year Treasury note hovered around 1.92 percent mark and the yield on short-term 2-year note jumped more than 1-1/2 basis points to 1.562 percent.

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