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Europe Roundup: Sterling eases amid persisting Brexit fears; euro plunges ahead of ECB policy meet, gold off 6-year peak on profit-taking - Friday, July 19th, 2019

Market Roundup

  • Eurozone current account surplus widened in May - ECB
  • Pound eases on Brexit fears
  • Gold eases from a six-year peak
  • UK budget deficit swells in the first quarter of 2019/20 tax year
  • Merkel: Germany is right to have a balanced budget policy
  • Merkel: Weaker economy gives us reason to try to stimulate the domestic economy

Economic Data Ahead

  • (0830 ET/1230 GMT) Statistics Canada is expected to report that retail sales gained 0.3 percent in May after rising 0.1 percent in April, while excluding autos, retail sales are likely to have risen 0.4 percent, after advancing 0.1 percent in the previous month.
  • (1000 ET/1400 GMT) The University of Michigan is likely to report that U.S. preliminary consumer sentiment index rise to 98.5 in July, after posting a final reading of 98.2 in May.
  • (1300 ET/1700 GMT) Baker Hughes reports U.S. Oil Rig Count. 

Key Events Ahead

  • (1105 ET/1505 GMT) Federal Reserve Bank of St. Louis President James Bullard gives a speech
  • (1630ET/2030 GMT) Boston Federal Reserve President Eric Rosengren's speech

FX Beat

DXY: The dollar index bounced back, halting a 2-day losing streak, following the New York Federal Reserve’s clarification that President Williams’ comments were academic and not about immediate policy direction. Investors now await the U.S. Michigan Consumer Sentiment Index for the next direction on the pair. The greenback against a basket of currencies traded 0.3 percent up at 97.03, having touched a low of 96.67 on Thursday, its lowest since June 4.

EUR/USD: The euro plunged, giving away most of its previous session gains as traders wait for next week's European Central Bank meeting. Moreover, Bloomberg's report stating that ECB staff members are studying a potential change to the bank's inflation goal of near 2 percent further dented the bid tone around the major. The European currency traded 0.4 percent down at 1.1236, having touched a low of 1.1199 on Wednesday, its lowest since July 9. Immediate resistance is located at 1.1304 (50.0% retracement of 1.1412 and 1.1193), a break above targets 1.1329 (61.8% retracement). On the downside, support is seen at 1.1225 (June 20 Low), a break below could drag it below .1193 (July 9 Low).

USD/JPY: The dollar rebounded from a 3-week low after statements from the New York Fed nullified effects of President John Williams comments favouring 50 basis points Fed rate cut.  On Thursday, comments from Williams cemented expectations the Fed would opt to cut interest rates by 25 basis points (bps) at its July 30-31 policy meeting and also fuelled expectations of an even deeper 50 bps reduction. The pair was trading 0.2 percent up at 107.59, having hit a low of 107.21 earlier, its lowest since June 26. Immediate resistance is located at 108.11 (July 15 High), a break above targets 108.53 (July 1 High). On the downside, support is seen at 107.10 (June 26 Low), a break below could take it lower at 106.78 (June 25 Low).

GBP/USD: Sterling declined as traders focused on the growing risks of Britain leaving the European Union without a deal in place by end-October. On Thursday, the pair registered its biggest daily jump in more than two months after the British lawmakers supported proposals to make it harder for the next prime minister to force through a no-deal Brexit by suspending Parliament. The major traded 0.1 percent down at 1.2529, having hit a low of 1.2382 on Wednesday, it’s lowest since Jan. 3. Investors’ attention will remain on the development surrounding Brexit, ahead of the U.S. fundamental drivers. Immediate resistance is located at 1.2591 (July 4 High), a break above could take it near 1.2648 (July 2 High). On the downside, support is seen at 1.2494 (5-DMA), a break below targets 1.2439 (July 9 Low). Against the euro, the pound was trading 0.2 percent up at 89.65 pence, having hit a low of 90.51 on Wednesday, it’s lowest since Jan. 11.

USD/CHF: The Swiss franc eased after rising to a near 3-week peak earlier in the day, as the greenback recovered, having fallen heavily on dovish comments from a key Fed policymaker. The major trades 0.1 percent up at 0.9823, having touched a low of 0.9805 earlier; it’s lowest since July 1. On the higher side, near-term resistance is around 0.9873 (July 3 High) and any break above will take the pair to next level till 0.9932 (July 5 High). The near-term support is around 0.9778 (July 1 Low), and any close below that level will drag it till 0.9738 (June 28 Low).

Equities Recap

European shares surged as comments from a Federal Reserve officials cemented the case for a U.S. interest rate cut by the end of July.

The pan-European STOXX 600 index gained 0.1 percent at 387.02 points, while the FTSEurofirst 300 rallied 0.1 percent to 1,522.87 points.

Britain's FTSE 100 trades 0.1 percent up at 7,498.80 points, while mid-cap FTSE 250 gained 0.1 to 19,560.64 points.

Germany's DAX rose 0.3 percent at 12,248.55 points; France's CAC 40 trades 0.05 percent higher at 5,551.25 point.

Commodities Recap

Crude oil prices rebounded from multi-week lows as tensions in the Middle East increased after a U.S. Navy ship destroyed an Iranian drone in the Strait of Hormuz, a major chokepoint for global crude flows.  International benchmark Brent crude was trading 0.7 percent higher at $62.89 per barrel by 1020 GMT, having hit a low of $61.26 on Thursday, its lowest since June 18. U.S. West Texas Intermediate was trading 0.5 percent up at $55.91 a barrel, after falling as low as $54.71 on Thursday, its lowest since the June 20.

Gold prices eased on profit booking after the safe-haven metal surpassed $1,450 an ounce for the first time in more than six years on dovish signals on monetary policy from the U.S. Federal Reserve and fresh tensions in the Middle East. Spot gold declined 0.5 percent to $1,438.61 by 1024 GMT, having touched a high of $1,452.80 earlier, its highest since May 10, 2013, and was on track for a second consecutive weekly gain. U.S. gold futures jumped about 1 percent to $1,440.50 an ounce.

Treasuries Recap

The yield on the U.S. benchmark 10-year Treasury yield recovered 3 basis points to 2.047 percent, the super-long 30-year bond yields jumped 2-3/4 basis points to 2.57 percent and the yield on the short-term 2-year traded 4.8 basis points higher at 1.792 percent.

The yield on the UK benchmark 10-year gilts plunged 2-1/2 basis points to 0.746 percent, the 30-year yield rose suffered nearly 1.8 basis points to 1.378 percent and the yield on the short-term 2-year slumped nearly 2.9 basis points to 0.580 percent.

The German 10-year bond yields, which move inversely to its price, slumped 3.2 basis points to -0.323 percent, the yield on 30-year note has shown a minor recovery of 2 basis points to 0.28 percent and the yield on short-term 2-year traded tad down at -0.770 percent.

The Japanese government bond prices surged, with the 10-year JGB futures rising 0.04 point to 153.59, extending their recovery from a 1-1/2-month low of 153.32 set on Tuesday. The 10-year JGB yield was flat at minus 0.14 percent, while the 20-year JGB yield was flat at 0.225 percent. The two-year JGB yield fell 0.5 basis point to minus 0.205 percent and the five-year JGB yield also fell 0.5 basis point, to minus 0.235 percent.

The Australian government bonds traded range bound during Asian session amid a muted trading session that witnessed data of little economic significance ahead of the Reserve Bank of Australia’s Phillip Lowe and Christopher Kent speeches scheduled next week. The yield on Australia’s benchmark 10-year note, which moves inversely to its price, traded flat at 1.347 percent, the yield on the long-term 30-year bond also remained steady at 1.995 percent and the yield on short-term 2-year rose over 2 basis points to 0.952 percent.

By Lactus Fernandes
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