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Europe Roundup: Sterling eases on UK political uncertainty fears, greenback gains after Trump downplays worries of a lengthy trade war, European shares surge - Wednesday, August 7th, 2019

Market Roundup

  • China's July forex reserves fall to $3.104 trillion amid rising trade tensions
  • ECB to test five Croatian banks as country aims for euro entry
  • French trade deficit widened in June compared to May
  • UK's opposition Labour Party open to a Scottish independence referendum - McDonnell

Economic Data Ahead

  • (1000 ET/1400 GMT) The Richard Ivey School of Business releases Canada's seasonally adjusted Ivey Purchasing Managers Index for the month of July. The index posted a reading of 52.4 in the prior month.
  • (1030 ET/1430 GMT) The Energy Information Administration (EIA) reports its Crude Oil Stocks for the week ending August 2.
  • (1500 ET/1900 GMT) The U.S. Federal Reserve is likely to report that consumer credit eased to $16.0 billion in June from $17.09 billion the month before.

Key Event Ahead

  • No Significant Event Scheduled

FX Beat

DXY: The dollar index gained after White House economic adviser Larry Kudlow said the Trump administration wants to continue trade talks with China and is still planning to host a Chinese delegation for talks in September. The greenback against a basket of currencies traded 0.05 percent up at 97.63, having touched a low of 97.21 the day before, its lowest since July 22.

EUR/USD: The euro eased, extending previous session losses, as the greenback gained after President Donald Trump downplayed worries of a lengthy trade war. The European currency traded 0.1 percent down at 1.1190, having touched a high of 1.1249 earlier, its highest since July 19. Immediate resistance is located at 1.1263 (July 16 High), a break above targets 1.1322 (July 2 High). On the downside, support is seen at 1.1164 (38.2% retracement of 1.1026 and 1.1249), a break below could drag it below 1.1133 (5-DMA).

USD/JPY: The dollar slumped against the Japanese yen after China responded to President Donald Trump's tariff threat by allowing its currency to weaken past the psychologically important line of 7 per dollar, which immediately prompted Washington to label Beijing a currency manipulator. The major was trading 0.3 percent down at 106.14, having hit a low of 105.52 on Tuesday, its lowest since Jan 3. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. consumer credit speech. Immediate resistance is located at 106.96 (38.2% retracement of 109.31 and 105.52), a break above targets 107.41 (50% retracement). On the downside, support is seen at 105.52 (Aug. 6 Low), a break below could take it lower at 104.65 (Jan. 3 Low).

GBP/USD: Sterling declined, reversing most of its previous session gains as investors remain cautious of a no-confidence vote in the new Conservative government as soon as it comes back from the summer recess, or an early election as an October 31 deadline to leave the European Union approaches. The major traded 0.1 percent down at 1.2150, having hit a low of 1.2079 on Thursday, 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 1.2253 (38.2% retracement of 1.2522 and 1.2079), a break above could take it near 1.2305 (61.8% retracement). On the downside, support is seen at 1.2079 (Aug. 1 Low), a break below targets 1.2017 (Jan 17, 2017, Low). Against the euro, the pound was trading 0.1 percent down at 92.24 pence, having hit a low of 92.49 on Tuesday, it’s lowest since Sept 2017.

USD/CHF: The Swiss franc eased, extending losses from the previous session as investor risk-averse sentiment eased. The major trades 0.1 percent up at 0.9768, having touched a low of 0.9703 the day before; it’s lowest since June 25. On the higher side, near-term resistance is around 0.9808 (38.2% retracement of 0.9975 and 0.9703) and any break above will take the pair to next level till 0.9840 (50% 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 steadied as softer rhetoric from Washington on the U.S.-China trade war soothed investors risk sentiment.

The pan-European STOXX 600 index surged 0.9 percent at 371.22 points, while the FTSEurofirst 300 gained 0.9 percent to 1,460.57 points.

Britain's FTSE 100 trades 0.9 percent up at 7,232.62 points, while mid-cap FTSE 250 rallied 0.8 to 19,004.66 points.

Germany's DAX rose 1.3 percent at 11,721.91 points; France's CAC 40 trades 1.4 percent higher at 5,305.67 points.

Commodities Recap

Crude oil prices steadied after falling o its lowest level since January, as deepening U.S.-China trade tensions weighed on the outlook for the global economy and energy demand. International benchmark Brent crude was trading 0.05 percent higher at $58.72 per barrel by 1051 GMT, having hit a low of $58.49 earlier, its lowest since January. U.S. West Texas Intermediate was trading 0.1 percent up at $53.47 a barrel, after falling as low as $53.14, its lowest since the June 18.

Gold prices surged by more than 1 percent to their highest in more than six years, as the trade war between China and the United States showed no signs of abating, sending investors into the safety of safe-haven assets. Spot gold was 1.1 percent up at $1,489.39 per ounce by 1054 GMT, having touched a high of $1,491.18 earlier, its highest since April 2013. U.S. gold futures climbed 1.2 percent to $1,501.50 an ounce.

Treasuries Recap

The U.S. 10-year Treasury yield again plunged to lowest since 2016 as investors remain worried over the trade tensions between the United States and China. Also, participants are eyeing the benchmark 10-year Note auction and Chicago Fed President Evans’ speech, both scheduled for today at 17:00GMT and 16:00GMT respectively. The yield on the benchmark 10-year Treasury yield slumped nearly 9 basis points to 1.652 percent, the super-long 30-year bond yields plunged nearly 9-1/2 basis points to 2.177 percent and the yield on the short-term 2-year traded 5 basis points down to 1.559 percent.

The United Kingdom’s gilt yields plunged slightly during European trading hours Wednesday ahead of the country’s gross domestic product (GDP) for the second quarter of this year, scheduled to be released on August 9 by 08:30GMT and the manufacturing production data for the month of June, due on the same day for further direction in the debt market. The yield on the benchmark 10-year gilts, plunged 6-1/2 basis points to 0.449 percent, the 30-year yield slumped nearly 9 basis points to 1.103 percent and the yield on the short-term 2-year traded 2 basis points lower at 0.410 percent.

The German bunds jumped during European trading session Wednesday after the country’s industrial production for the month of June disappointed market investors ahead of the trade balance data for the similar period, scheduled to be released on August 9 by 06:00GMT for further direction in the debt market. The German 10-year bond yields, which move inversely to its price, slumped 5 basis points to -0.589 percent, the yield on 30-year note plunged 8-1/2 basis points to -0.126 percent and the yield on short-term 2-year traded nearly 1-1/2 basis points down at -0.831 percent.

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