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The morning London session was soothingly calm compared to the storm during the earlier sessions. Most currencies were range-bound during the session. The sole exception was the pound since it was in recovery mode after getting the stuffing beaten out of it during the earlier session.

The Swissy is also somewhat noteworthy because it was the worst-performing currency of the session, although price action was not as clear-cut.

  • German trade balance: €19.8B vs. €20.3B expected, €19.6B previous
  • French industrial production m/m: -0.5% vs. 0.3% expected, 2.2% previous
  • French manufacturing production m/m: -1.2% vs. -0.5% expected, 2.5% previous
  • U.K. industrial production m/m: 0.2% vs. 0.7% expected, -0.5% previous
  • U.K. industrial production y/y: -0.8% vs. -0.3% expected, 1.4% previous
  • U.K. manufacturing production m/m: 0.2% vs. 0.8% expected, -0.3% previous
  • U.K. manufacturing production y/y: 0.0% vs. 0.7% expected, 2.3% previous
  • U.K. trade balance: -£10.38B vs. -12.0B expected, -£13.44B previous

Major Events/Reports

Conservatives & DUP agree to work together

After it became clear that Theresa May’s Conservativa Party wouldn’t be able to capture at least 326 seats to secure a majority, Theresa May entered into negotiations with the Democratic Unionist Party (DUP).

The DUP is a party based in Northern Ireland and it is vehemently against a so-called “hard” Brexit. Also, the DUP is expected to have 10 seats in Parliament.

And that, combined with the Conservatives’ 318 would be enough to secure control in the House of Commons, provided the two parties work together of course.

Having said that, Theresa May announced in her speech earlier that she plans to form a minority government and that she has struck a deal with the DUP in order to try and minimize any obstruction in the Brexit negotiations.

To quote May directly:

“What the country needs more than ever is certainty and having secured the largest number of votes and the greatest number of seats in the General Election it is clear that only the Conservative and Unionist Party has the legitimacy and ability to provide that certainty by commanding a majority in the House of Commons.

Theresa May also promised to “guide the country through the crucial Brexit talks that begin in just 10 days.”

No word on whether she plans to keep her job as the Prime Minister or resign, though.

Catalonexit? Cataloniaquit?

According to Carles Puigdemont, the President of the Generalitat of Catalonia, the region of Catalonia will hold a referendum on October 1. And the question that will be asked during the referendum is the following:

“Do you want Catalonia to be an independent state in the form of a republic?”

On other words, Catalans will vote on whether or not they want to leave Spain and become an independent republic.

The results of the referendum would actually be non-binding, however. In fact, the call for an independence referendum may likely even be illegal since the referendum was called without Madrid’s approval. Still, a rather interesting development.

Signs of risk-taking in Europe

Many European equity indices opened lower during the session after the elections upset in the U.K. However, it soon became clear that risk appetite was more dominant as the equity indices clawed their way higher.

  • The pan-European FTSEurofirst 300 still down up by 0.03% to 1,528.30 but off its low at 1,521.41
  • Germany’s DAX was up by 0.42% to 12,766.75
  • The blue-chip Euro Stoxx 50 was up by 0.31% to 3,575.50

U.S. equity futures were also in the green.

  • S&P 500 futures were up by 0.14% to 2,436.00
  • Nasdaq futures were up by 0.09% to 5,890.25

Major Market Mover(s):

GBP

The pound staged a broad-based recovery during the morning London session after getting whupped pretty hard during the past couple of session.

The pound’s recovery was likely due to profit-taking by the shorts. However, it’s also possible that the pound got supported by relief buying after word got around that Theresa May was trying to strike a deal with the DUP.

GBP/USD was up by 80 pips (+0.63%) to 1.2744, GBP/CHF was up by 101 pips (+0.84%) to 1.2383, GBP/JPY was up by 97 pips (+0.69% ) to140.75

CHF

The Swissy was the worst-performing currency of the session. No clear reason why, but some signs of risk-taking may have applied pressure on the safe-haven Swissy. Also, it’s quite possible that the sneaky SNB was using the calm environment to weaken the Swissy.

USD/CHF was up by 19 pips (+0.20%) to 0.9714, EUR/CHF was up by 12 pips (+0.12%) to 1.0861, NZD/CHF was up by 9 pips (+0.13%) to 0.6997

Watch Out For:

  • 12:30 pm GMT: Canada’s jobless rate (6.6% expected, 6.5% previous) and net change in employment (15.0K expected, 3.2K previous); read Forex Gump’s preview here
  • 12:30 pm GMT: Capacity utilization rate in Canada (82.4% expected, 82.2% previous)
  • 2:00 pm GMT: U.S. final wholesale inventories (-0.1% expected, -0.3% previous)