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Europe Roundup: Sterling consolidates amid Brexit fears, euro nears 2-1/2 week low as EZ investor morale deteriorates, European shares subdued - Monday, July 8th, 2019

Market Roundup

  • Fed easing could prompt first China rate cut in four years - Analysts
     
  • Eurozone investor morale deteriorate further in July, German recession looms: Sentix
     
  • EU in progress to get European candidate to replace Lagarde at IMF, official says

Economic Data Ahead

  • (1500 ET/1900 GMT) The U.S. Federal Reserve is likely to report that consumer credit declined to $17.0 billion in May from $17.5 billion the month before.

Key Events Ahead

  • No Significant Events Ahead

FX Beat

DXY: The dollar index advanced, drifting closer to a near 3-week peak, as investors expect U.S. Federal Reserve Chairman Jerome Powell to go slow on rate cuts this year. Markets await Powell’s semi-annual testimony to the U.S. Congress on Wednesday, which could provide further clues on the near-term outlook for monetary policy. The greenback against a basket of currencies traded 0.2 percent up at 97.33, having touched a high of 97.44 on Friday, its highest since June 19.

EUR/USD: The euro eased, hovering towards a 2-1/2 week low hit in the previous session, after data showed investor morale in the euro zone deteriorated further in July, confounding expectations for a rise. Moreover, the selling pressure intensified following comments from Annegret Kramp-Karrenbauer, leader of Germany’s Christian Democrats (CDU), stating that the European Central Bank’s low-interest-rate policy was causing problems for savers and thought should be given to reduce its duration. The European currency traded flat at 1.1220, having touched a low of 1.1207 on Friday, its lowest since June 19. Immediate resistance is located at 1.1256 (23.6% retracement of 1.1412 and 1.1207), a break above targets 1.1310 (50.0% retracement). On the downside, support is seen at 1.1203 (June 17 Low), a break below could drag it below 1.1160 (June 3 Low).

USD/JPY: The dollar surged, extending gains for the third straight session, after last week’s strong U.S. jobs data lowered expectations for a sharp Federal Reserve interest rate cut. Investors now focus on Federal Reserve Chairman Jerome Powell’s Congressional testimony, due on Wednesday and Thursday, as well as U.S. inflation data due later this week. The pair was trading 0.1 percent up at 108.53, having hit a high of 107.63 on Friday, its highest since Jun. 18. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. consumer credit change report. Immediate resistance is located at 108.80 (June 11 High), a break above targets 109.08. On the downside, support is seen at 107.81 (June 5 Low), a break below could take it lower at 107.24 (June 24 Low).

GBP/USD: Sterling consolidated above a 6-month low hit in the prior session, amid heightened expectations that the Bank of England will cut interest rates in 2020. Moreover, looming concerns over a no deal Brexit and increased UK political uncertainty continued to dent the bid tone around the British pound. The major traded flat at 1.2526, having hit a low of 1.2481 on Friday, it’s lowest since Jan. 3. Investors’ attention will remain on development surrounding Brexit, ahead of the U.S. fundamental drivers. Immediate resistance is located at 1.2579 (5-DMA), a break above could take it near 1.2636 (10-DMA). On the downside, support is seen at 1.2506 (June 18 Low), a break below targets 1.2481 (July 5 Low). Against the euro, the pound was trading flat at 89.54 pence, having hit a high of 89.19 last week, it’s highest since Jun. 25.

USD/CHF: The Swiss franc eased, hovering towards a 2-1/2 week low, as the greenback rallied after data showed the U.S. nonfarm payrolls rebounded in June to 224,000, the most in five months, surpassing estimate of 160,000. The major trades 0.1 percent up at 0.9921, having touched a high of 0.9932 on Friday; it’s highest since June 20. On the higher side, near-term resistance is around 0.9943 (June 20 High) and any break above will take the pair to next level till 0.9999 (June 17 High). The near-term support is around 0.9834 (July 3 Low), and any close below that level will drag it till 0.0.9791 (June 20 Low).

Equities Recap

European shares consolidated within narrow ranges as hopes of an interest-rate cut this month by the U.S. Federal Reserve were tempered by last week's strong U.S. jobs data.

The pan-European STOXX 600 index fell 0.05 percent at 390.02 points, while the FTSEurofirst 300 slumped 0.05 percent to 1,535.26 points.

Britain's FTSE 100 trades 0.1 percent down at 7,544.21 points, while mid-cap FTSE 250 eased 0.3 to 19,599.58 points.

Germany's DAX declined 0.1 percent at 12,599.01 points; France's CAC 40 trades 0.1 percent lower at 5,585.90 points.

Commodities Recap

Crude oil prices declined amid escalating tensions around Iran’s nuclear program, while the U.S.-China trade war dampened prospects of global economic growth and oil demand. International benchmark Brent crude was trading 0.2 percent lower at $64.31 per barrel by 1013 GMT, having hit a low of $62.06 on Wednesday, its lowest since June 19. U.S. West Texas Intermediate was trading 0.4 percent down at $57.47 a barrel, after falling as low as $56.03 on Wednesday, its lowest since the June 20.

Gold prices rose as focus shifted to global growth concerns and interest rate cuts by major central banks. Spot gold was 0.5 percent up at $1,405.30 per ounce by 1018 GMT, having touched a high of $1,437.66 on Wednesday, its highest since June 25. U.S. gold futures climbed 0.6 percent to $1,408.90 an ounce.

Treasuries Recap

The U.S. Treasuries gained during the afternoon session, ahead of the Federal Reserve Chair Jerome Powell’s speech, scheduled to be held on July 9 by 12:45GMT and the JOLTs job openings data for the month of May, besides, a host of other Fed speeches, all due on the same day, which shall provide further direction to the debt market. The yield on the benchmark 10-year Treasury yield remained 1-1/2 basis points lower at 2.030 percent, the super-long 30-year bond yields traded nearly 2 basis points down at 2.530 percent and the yield on the short-term 2-year remained nearly 1-1/2 basis points lower at 1.860 percent.

The German bunds edged tad higher during European session after the country’s industrial production for the month of May disappointed market investors, while eyes still remain on the 10-year auction, scheduled to be held on July 10 by 09:40GMT for further direction in the debt market. The German 10-year bond yields, which move inversely to its price, slipped 1-1/2 basis points to -0.373 percent, the yield on 30-year note also edged 1-1/2 basis points lower to 0.230 percent and the yield on short-term 2-year remained flat at -0.741 percent.

The Japanese government bonds closed lower on the first trading day of the week following a better-than-expected rise in the United States non-farm payrolls data for the month of June led to hopes of a lesser aggressive rate cut by the Federal Reserve, which weighed on debt prices. At close, the yield on the benchmark 10-year JGB note, which moves inversely to its price, rose 1-1/2 basis points to -0.155 percent, the yield on the long-term 30-year surged nearly 2 basis points to 0.350 percent and the yield on short-term 2-year edged tad 1 basis point higher to -0.205 percent

The Australian government bonds plunged during early Asian trading session tracking sell-off in the U.S. Treasuries. The U.S. Treasury yields rose on Friday on better-than-expected U.S. payroll numbers in June, helping the Australian 10-yer yield to rise about 4 basis points. The yield on Australia’s benchmark 10-year note, which moves inversely to its price, rose nearly 4 basis points to 1.325 percent, the yield on the long-term 30-year bond also climbed 4 basis points to 1.972 percent and the yield on short-term 2-year traded about 4 basis points higher at 0.976 percent.

By Lactus Fernandes
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