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Europe Roundup: Sterling at multi-year lows on disorderly Brexit fears, euro eases as German economy likely to shrink, gold steadies above $1,500 - Monday, August 12th, 2019

Market Roundup

  • Merkel stands by principle of balanced budget: spokesman
     
  • Scholz: Germany can fulfill its tasks without taking new debt
     
  • China's July new loans eases more than expected
     
  • Italy's League would set 2020 deficit/GDP goal below 3%: Borghi
     
  • Swiss sight deposits jump signals more SNB forex intervention
     
  • Global economic outlook darkens amid escalating trade dispute: Ifo
     

Economic Data Ahead

  • (1400 ET/1800 GMT) The U.S. reports its monthly budget statement for the month of July. The government's budget deficit is likely to widen to $112.5 billion from $8 billion in the previous month.

Key Events Ahead

  • No Significant Event Scheduled

FX Beat

DXY: The dollar index surged as markets now focus on the Federal Reserve annual symposium at Jackson Hole later in the week, with investors seeking clarity on the future path of interest rates.  The greenback against a basket of currencies traded 0.5 percent up at 97.54, having touched a low of 97.03 on Friday, its lowest since July 19.

EUR/USD: The euro fell below the 1.1200 handle as the German economy is widely expected to have contracted in the second quarter, and sentiment indicators point to hardly any improvement in the third. The European currency traded 0.1 percent down at 1.1209, having touched a high of 1.1249 last week, its highest since July 19. Immediate resistance is located at 1.1241 (August 7 High), a break above targets 1.1282 (July 19 High). On the downside, support is seen at 1.1138 (50% retracement of 1.1026 and 1.1249), a break below could drag it below 1.1111 (61.8% retracement).

USD/JPY: The dollar plunged to a fresh 7-month low amid ongoing worries that a prolonged U.S.-China trade war and damaging Brexit could push economies into recession. The major was trading 0.6 percent down at 105.08, having hit a low of 105.05 earlier, its lowest since Jan 3. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. monthly budget statement. Immediate resistance is located at 106.22 (23.6% retracement of 109.31 and 105.26), a break above targets 106.81 (38.2% retracement). On the downside, support is seen at 105.00, a break below could take it lower at 104.65 (Jan. 3 Low).

GBP/USD: Sterling rebounded after falling to a 2-1/2 year low against the dollar and 10-year low against the euro earlier in the session on worse-than-expected British economic data and no-deal Brexit fears. Moreover, reports that Ireland would not renegotiate the Brexit backstop at a meeting with British Prime Minister Boris Johnson later this month further exacerbated fears Britain would leave the European Union with no transition deal in place in October. The major traded 0.5 percent up at 1.2087, having hit a low of 1.2014 earlier, it’s lowest since Jan. 2017. Investors’ attention will remain on the development surrounding Brexit, ahead of the U.S. fundamental drivers. Immediate resistance is located at 1.2135 (23.6% retracement of 1.2522 and 1.2079), a break above could take it near 1.2210 (38.2% retracement). On the downside, support is seen at 1.1986 (Jan 16, 2017, Low, a break below targets 1.1904 (Oct 7, 2016, Low). Against the euro, the pound was trading 0.6 percent up at 93.24 pence, having hit a low of 93.24 earlier, it’s lowest since October 2009.

USD/CHF: The Swiss franc rose, extending gains for the fourth straight session, as the global economic outlook deteriorated as the trade dispute between the United States and China escalated. The major trades down at 0.9725, having touched a low of 0.9692 on Wednesday; it’s lowest since September 27. On the higher side, near-term resistance is around 0.9759 (23.6% retracement of 0.9975 and 0.9703) and any break above will take the pair to next level till 0.9800 (38.2% retracement). The near-term support is around 0.9700, and any close below that level will drag it till 0.9650 (Sept. 6 Low).

Equities Recap

European shares slumped, weighed down by U.S.-China trade tensions and Italy’s political turmoil.

The pan-European STOXX 600 index declined 0.4 percent at 370.16 points, while the FTSEurofirst 300 tumbled 0.3 percent to 1,458.48 points.

Britain's FTSE 100 trades 0.5 percent down at 7,221.40 points, while mid-cap FTSE 250 fell 0.5 to 19,006.26 points.

Germany's DAX eased 0.2 percent at 11,663.74 points; France's CAC 40 trades 0.5 percent lower at 5,300.92 points.

Commodities Recap

Crude oil prices declined amid worries about an economic slowdown and the U.S.-China trade war, which have led to a cut in the outlook for global oil demand. International benchmark Brent crude was trading 0.2 percent lower at $58.12 per barrel by 1117 GMT, having hit a low of $55.86 on Wednesday, its lowest since January. U.S. West Texas Intermediate was trading 0.8 percent down at $53.78 a barrel, after falling as low as $50.51 on Wednesday, its lowest since the January.

Gold prices gained, holding above the psychological $1,500 level, amid concerns over slowing global economic growth and the trade war between Washington and Beijing. Spot gold was trading 0.5 percent up at $1,505.13 per ounce at 1120 GMT, having touched a high of $1,510.29 on Wednesday, its highest since April 2013.  U.S. gold futures were up 0.4 percent at $1,514.10 an ounce.

Treasuries Recap

The U.S. Treasuries jumped during the afternoon session ahead of the country’s consumer price inflation (CPI) data for the month of July, scheduled to be released on August 13 by 12:30GMT. Also, a host of other 3-tier economic data, due for release by end of this week will be carefully eyed for further direction in the debt market. The yield on the benchmark 10-year Treasury yield slumped 4-1/2 basis points to 1.690 percent, the super-long 30-year bond yields also plunged 4-1/2 basis points to 2.201 percent and the yield on the short-term 2-year traded nearly 4 basis points down at 1.592 percent.

The United Kingdom’s gilts gained during European trading hours ahead of the country’s employment report for the month of June, scheduled to be released on August 13 by 08:30GMT and the consumer price inflation (CPI) data for July, due on the following day by 08:30GMT. The yield on the benchmark 10-year gilts, remained tad higher at 0.447 percent, the 30-year yield rose 1-1/2 basis points to 1.174 percent and the yield on the short-term 2-year hovered around 0.446 percent.

The German bunds gained during European trading session ahead of the country’s ZEW economic sentiment index for the month of August, scheduled to be released on August 13 by 09:00GMT and the gross domestic product (GDP) for the second quarter of this year, due on the following day by 06:00GMT shall provide further direction to the debt market. The German 10-year bond yields, which move inversely to its price, slipped 1 basis point to -0.590 percent, the yield on 30-year note suffered nearly 1-1/2 basis points to -0.084 percent and the yield on short-term 2-year too traded nearly 1-1/2 basis points down at -0.878 percent.

The Australian government bonds suffered during Asian session of the first trading day of the week, amid a muted session that witnessed data of little economic significance ahead of the country’s labour market report, scheduled to be released on August 15 by 01:30GMT. The yield on Australia’s benchmark 10-year note, which moves inversely to its price, jumped  2-1/2 basis points to 0.971 percent, the yield on the long-term 30-year bond surged nearly 3 basis points to 1.729 percent and the yield on short-term 2-year traded tad higher at 0.729 percent.

By Lactus Fernandes
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