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The yen dominated its peers despite some risk-taking at the start of the session, likely because yen pairs were taking directional cues from falling bond yields.

The Kiwi, meanwhile, showed weakness from the get-go, even though risk appetite prevailed at the start. Signs that risk aversion was returning did eventually show, however, so the Kiwi’s slide made more sense in the end.

  • German PPI m/m: 0.5% vs. 0.4% expected, 0.5% previous
  • German PPI y/y: 2.7% vs. 2.5% expected, 2.0% previous
  • CBI’s U.K. industrial order expectations: 13 vs. 1 expected, -3 previous
  • Central bank bosses will be speaking later
  • U.K. House of Commons expected to vote on amended E.U. Withdrawal Bill

Major Events/Reports:

ECB’s Nowotny speaks

ECB Member Ewald Nowotny was interviewed earlier, and he had this to say about the euro’s slide (and Greenback’s rise).

“What we have seen is that markets are interpreting the developments in such a way that there will be an increasing interest rate differential and that this will have an impact on the exchange rate.”

Nowotny also noted that:

“On the whole, there are more risks to financial stability in Europe on the political side than on the economic side.”

And according to Nowotny, these political risks include growing nationalism among some E.U. member states, the ongoing migration crisis, Brexit, and (quite naturally) the trade spat between the E.U. and the U.S.

Nowotny’s comments caused the euro to slide across the board. Dip buyers were waiting, though, so the euro closed out the session on a mixed note.

E.U. retaliates against U.S. tariffs

The E.U. has been threatening to impose retaliatory tariffs on U.S. goods since March.

And today, the E.U. made good on those threats since the European Commission proclaimed the following in its official press statement (emphasis mine).

“The European Commission adopted today the regulation putting in place the EU’s rebalancing measures in response to the US tariffs on steel and aluminium. The measures will immediately target a list of products worth €2.8 billion and will come into effect on Friday 22 June.”

Risk appetite recovers (but faltering)

The plague of risk aversion finally appeared to be going away since the major European equity indices opened higher and then proceeded to climb higher as the session progressed.

However, the plague wasn’t apparently cured since the major European equity indices came off their highs and began to slide later.

And according to market analysts, banking shares initially led the way because of optimism due to yesterday’s news that Germany and France have agreed on a deal to create a draft for Euro Zone integration.

However, some market analysts were also pointing to growing expectations that the People’s Bank of China (PBoC) may ease its monetary policy in response to the escalating trade spat with the U.S. and after Chinese state media announced the same.

As for the later signs of returning risk aversion, there’s no clear reason for that. However, the major European equity indices began to feel some bearish pressure after the E.U. announced that it will impose tariffs on U.S. goods this Friday, so it’s probable that trade-related jitters spooked the markets again.

  • The pan-European FTSEurofirst 300 was up by 0.64% to 1,507.61 but off the day’s high at 1,511.60
  • Germany’s DAX was up by 0.18% to 12,701.12 but off the day’s high at 12,759.80
  • The blue-chip Euro Stoxx 50 was up by 0.39% to 3,451.35 but off the day’s high at 3,459.55

Global bond yields stumble

Another sign that risk aversion was making a comeback was the demand for bonds, which caused global bond yields to slide.

  • German 10-year bond yield down by 1.34% to 0.368%
  • French 10-year bond yield down by 0.43% to 0.702%
  • U.K. 10-year bond yield down by 0.08% to 1.280%
  • U.S. 10-year bond yield was stil up by 0.19% to 2.899% but off the day’s high at 2.909%
  • Canadian 10-year bond yield down by 0.14% to 2.162%

Major Market Mover(s):

NZD

The Kiwi was the worst-performing currency of the morning London session, which is rather wonky since risk appetite initially prevailed but the Kiwi showed broad-based weakness right from the get-go.

The Kiwi’s weakness made more sense later on, however, since there were signs of returning risk aversion in Europe.

NZD/USD was down by 27 pips (-0.40%) to 0.6874, NZD/CAD was down by 32 pips (-0.35%) to 0.9139, NZD/CHF was down by 27 pips (-0.40%) to 0.6847

JPY

The yen was the top-performing currency of the session. And while the yen’s strong performance also seems wonky (given the risk-on vibes at the start), bond yields were already falling near the start of the session, and it’s likely that yen pairs were taking directional cues from those.

USD/JPY was down by 14 pips (-0.13%) to 110.02, AUD/JPY was down by 25 pips (-0.32%) to 81.24, NZD/JPY was down by 41 pips (-0.54%) to 75.63

Watch Out For:

  • 12:30 pm GMT: U.S. current account (-$129B expected vs. -$128B previous)
  • 1:30 pm GMT: ECB Overlord Draghi, U.S. Fed Chair Powell, BOJ Shogun Kuroda, and RBA Guv’nah Lowe are all expected to speak in a panel discussion
  • 1:30 pm GMT: U.K. House of Commons expected to start voting on E.U. Withdrawal Bill
  • 2:00 pm GMT: U.S. existing home sales (5.52M expected vs. 5.46M previous)
  • 2:30 pm GMT: U.S. crude oil inventories (-2.1M expected, -4.1M previous)