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Europe Roundup: Sterling at 2-1/2 week trough as investors await parliament's return, euro slumps as EZ manufacturing activity contracts, greenback rallies amid holiday-thinned trading - Monday, September 2nd, 2019

Market Roundup

  • U.S. markets shut for a holiday
  • Gold edges higher after new U.S.-China tariffs
  • Euro holds below $1.10

Economic Data Ahead

  • No major economic data releases

Key Events Ahead

  • No significant events scheduled

FX Beat

DXY: The dollar index rallied to a fresh over 2-year peak as investors remained on the sidelines while looking to see what expansionary policies the European Central Bank and the U.S. Federal Reserve could unveil this month. The greenback against a basket of currencies traded 0.2 percent up at 98.99, having touched a high of 99.10 earlier, its highest since May 2017.

EUR/USD: The euro plunged to its lowest levels in more than two years after data showed eurozone manufacturing activity contracted for the seventh month in August, likely supporting expectations for monetary easing from the European Central Bank next week. The European currency traded 0.2 percent down at 1.0971, having touched a low of 1.0957 earlier, its lowest since May 2017.  Immediate resistance is located at 1.1010 (23.6% retracement of 1.1163 and 1.0963), a break above targets 1.1039 (38.2% retracement). On the downside, support is seen at 1.0945, a break below could drag it below 1.0900.

USD/JPY: The dollar rose against the safe-haven Japanese yen as China’s factory output unexpectedly expanded in August, compared with an official report on Saturday that showed a contraction. However, the upside appears limited amid an escalation in trade tensions between the United States and China. The major was trading 0.1 percent up at 106.34, having hit a low of 104.44 last week, its lowest since November 2016. Investors’ will continue to track the broad-based market sentiment, as the U.S. markets remain closed for the Labor Day Holiday. Immediate resistance is located at 106.73 (August 23 High), a break above targets 107.09 (August 6 High). On the downside, support is seen at 105.65 (August 28 Low), a break below could take it lower at 105.26 (August 9 Low).

GBP/USD: Sterling plunged to a 2-1/2 week low, as traders braced for a clash between the government and lawmakers opposed to Prime Minister Boris Johnson’s Brexit plans as parliament returns this week from its summer recess. The major traded 0.6 percent down at 1.2088, having hit a low of 1.2066 earlier, it’s lowest since August 15. Investors’ attention will remain on the development surrounding Brexit, amid a lack of data from the U.S. docket. Immediate resistance is located at 1.2210 (5-DMA), a break above could take it near 1.2273 (August 22 High). On the downside, support is seen at 1.2064 (August 20 Low), a break below targets 1.2014 (August 12 Low). Against the euro, the pound was trading 0.5 percent down at 90.72 pence, having hit a high of 90.16 on Tuesday, it’s highest since July 29.

USD/CHF: The Swiss franc plunged to a 1-month low, as the greenback surged after U.S. President Donald Trump said U.S. and China would still meet for talks later this month. The major trades 0.1 percent up at 0.9905, having touched a high of 0.9918 earlier, 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 0.9859 (August 30 Low), and any close below that level will drag it till 0.9814 (August 2 Low).

Equities Recap

European shares surged, as surprisingly positive data from China offset a hit from the latest round of tariffs between the U.S, and China that came into effect over the weekend.

The pan-European STOXX 600 index rallied 0.6 percent at 381.87 points, while the FTSEurofirst 300 gained 0.6 percent to 1,502.35 points.

Britain's FTSE 100 trades 1.3 percent up at 7,299.96 points, while mid-cap FTSE 250 surged 0.5 to 19,493.48 points.

Germany's DAX rose 0.3 percent at 11,979.01 points; France's CAC 40 trades 0.3 percent higher at 5,496.86 points.

Commodities Recap

Crude oil prices rose despite new tariffs imposed by the United States and China came into force, raising concerns about a further hit to global growth and demand for crude. International benchmark Brent crude was trading 0.3 percent higher at $59.04 per barrel by 1100 GMT, having hit a low of $58.46 on Friday, its lowest since August 27. U.S. West Texas Intermediate was trading 0.05 percent up at $55.03 a barrel, after falling as low as $54.53 earlier, its lowest since August 27.

Gold prices surged after the United States and China imposed new tariffs on each others’ goods although a firmer greenback limited the safe-havens upside. Spot gold was trading 0.1 percent up at $1,524.46 per ounce by 1102 GMT, having touched a low of $1,516.76 on Friday, its lowest since August 23. U.S. gold futures were up 0.1 percent at $1,531 an ounce.

Treasuries Recap

Italian bond yields fell towards recent multi-year lows after Italy’s prime minister said at the weekend he was confident that he could finalise talks on a new government by Wednesday.

The Japanese government bond prices declined and their yields pulled back from multi-year lows. The benchmark 10-year JGB yield was 1 basis point higher at minus 0.270 percent after easing to a 3-year low of minus 0.290 percent on Thursday. A drop below minus 0.300 percent would take the 10-year yield to a record low. The 20-year yield rose 1.5 basis points to 0.060 percent following a descent to 0.040 percent last week, its lowest since July 2016.

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