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The pound and the euro fought for the top spot during the morning London session. There can be only one champion, however. And in the end, it was the pound that came out on top.

While all that was happening, the Loonie quietly weakened across the board and was the worst-performing currency of the session.

  • French GDP q/q: 0.7% vs. 0.6% expected, same as previous
  • French GDP y/y: steady at 2.5% as expected
  • Italian trade balance: €1.99B vs. -€0.52B previous

Major Events/Reports:

Weidmann spricht

Jens Weidmann, the Bundesbank President and an ECB Member, was speaking in Vienna earlier.

And in his speech, Weidmann shared the following gem:

“The markets see a first interest rate increase around the middle of the year 2019, which is probably not entirely unrealistic.”

He also talked about the ECB’s QE program, saying that putting an end to the QE progam is “only the beginning of a multi-year process of monetary normalization … That’s why it’s so important to actually start soon.”

Overall, a rather hawkish view that goes somewhat against ECB Overlord Draghi’s more cautious forward message interest rates aren’t expected to rise any time soon.

Also, Weidmann’s comments about interest rates appear to support the rumors from last week about ECB members supposedly shifting their focus from the QE program to the future path of interest rates.

China trying to avoid a trade war

According to a Financial Times report that cited unnamed “people briefed on the discussions,”

China is supposedly taking steps to appease Trump in order to avoid a full-blown trade war between the U.S. and China.

And quoting directly from the report:

“Chinese officials are rushing to finalise new regulations by May that will allow foreign financial groups to take majority stakes in securities companies.”

“Beijing has also offered to buy more semiconductors from the US by diverting some purchases from South Korean and Taiwanese manufacturers, in an effort to help reduce annual $375bn merchandise trade surplus with the US.”

Risk-friendly start in Europe

The European equity indices started the new trading week by licking their wounds after last-week’s severe beat-down, which is a good enough start.

And market analysts say that the feelings of doom and gloom faded in Europe, thanks to easing fears of a trade war.

And easing fears of a trade war, in turn, were attributed to U.S. Treasury secretary Steven Mnuchin’s comments in a Fox New Sunday interview over the weekend, namely his admission that the U.S. and China are sitting down and trying to reason together.

To quote Mnuchin directly:

“We’re having very productive conversations with them [China] … I’m cautiously hopeful we reach an agreement.”

However, Mnuchin did stress that Trump’s position is not a bluff when he said:

“We’re not afraid of a trade war, but that’s not our objective … In a negotiation you have to be prepared to take action.”

Other than Mnuchin’s comments, it’s also very likely that trade war fears eased even further when the Financial Time released it’s report since the European equity indices got a noticeable boost when the report was released.

  • The pan-European FTSEurofirst 300 was up by 0.49% to 1,437.40
  • Germany’s DAX was up by 0.60% to 11,956.06
  • The blue-chip Euro Stoxx 50 was up by 0.34% to 3,314.65

U.S. equity futures were also in positive territory. There’s therefore a good chance that the risk-on vibes may carry over into the U.S. session.

  • S&P 500 futures were up by 1.24% to 2,630.00
  • Nasdaq futures were up by 1.58% to 6,657.75

Major Market Mover(s):

GBP

The pound and the euro were duking it out during the course of the session. And in the end, it was the pound that emerged triumphant.

Oddly enough, there weren’t any direct catalysts for the pound’s strength. However, some market analysts say that demand for the pound was likely driven by speculation that the BOE is on track for a May rate hike.

GBP/USD was up by 36 pips (+0.25%) to 1.4227, GBP/JPY was up by 48 pips (+0.32%) to 149.55, GBP/CAD was up by 94 pips (+0.52%) to 1.8333

EUR

The euro fought the good fight but it ended up losing to the pound and had to content itself with second place. Still a decent showing, though.

Anyhow, demand for the euro was apparently triggered by ECB Weidmann’s hawkish comments, particularly with regard to a possible rate hike by 2019.

EUR/USD was up by 25 pips (+0.20%) to 1.2407, EUR/JPY was up by 36 pips (+0.27%) to 130.43, EUR/CAD was up by 71 pips (+0.45%) to 1.5988

CAD

The Loonie was the worst-performing currency of the morning London session and is presently the second worst-performing currency of the day (after the yen).

There were no direct catalysts for the Loonie’s weakness. Oil prices were down, and that likely helped to drag the Loonie down.

However, the Loonie’s slide commenced a couple of hours before oil began to dip, so it’s also possible that we’re seeing some profit-taking. After all, the Loonie did have a good run last week.

USD/CAD was up by 33 pips (+0.26%) to 1.2887, AUD/CAD was up by 27 pips (+0.28%) to 0.9968, NZD/CAD was up by 25 pips (+0.27%) to 0.9389

Watch Out For:

  • 4:30 pm GMT: New York Fed President William Dudley will participate in a panel discussion
  • 8:30 pm GMT: Cleveland President Loretta Mester is scheduled to speak
  • 11:10 pm GMT: Federal Reserve Governor Randal Quarles will speak