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The euro caught a bid when the morning London session rolled around and was even able to claim the top spot of the session, likely because of Italy-related optimism.

The euro did have a hard time against the higher-yielding Aussie and Kiwi, though, likely because the two higher-yielding currencies were also in demand due to the risk-friendly vibes during the session.

Speaking of risk sentiment, the risk-friendly environment may have been great for the higher-yielders, but it was toxic for the safe-havens, with the Swissy getting the worst of it, so much so that the Swissy was the biggest loser of the session and is also the biggest loser of the day (so far).

Other than those, the pound is also worth noting since it moved higher at the start of the session even though there were no apparent catalysts. Some market analysts were pointing to short-covering, though.

In any case, the pound then got a bullish boost because of net positive U.K. data but got slapped lower when Theresa May’s spokesman announced a meeting on Thursday to discuss preparations for a “no-deal” Brexit. And that slap allowed the Kiwi and Aussie to outpace the pound, so the pound ended up mixed (but a net winner) for the session.

  • Sentix Euro Zone investor confidence: 12.0 vs. 15.0 expected, 14.7 previous
  • U.K. GDP m/m: 0.3% vs. 0.2% expected, 0.1% previous
  • U.K. goods trade balance: -£10.0B vs. -£11.7B expected, -£10.7B previous
  • Construction output in the U.K. m/m: 0.5% vs. 0.4% expected, 1.4% previous
  • U.K. industrial production m/m: 0.1% vs. 0.2% expected, 0.4% previous
  • U.K. manufacturing production m/m: -0.2% vs. 0.0% expected, 0.4% previous

Major Events/Reports:

U.K. data dump

The Office for National Statistics (ONS) released a slew of economic of report for the U.K. earlier.

And first up is the U.K.’s July Index of Production report, which showed that total industrial production in the U.K. only increased by 0.1% month-on-month in July. Moreover, the market was expecting a stronger 0.2% increase. But on a happer note, the increase in July does mark the third consecutive month of growth.

Looking at the details, the 0.2% fall in manufacturing output and the 0.7% drop in water and waste management output were the main culprits for the weaker-than-expected reading. And the main reason why total industrial production was still in positive territory is the 3.3% in mining and quarrying output.

Moving on to U.K.’s July construction output report, that revealed that construction output in the U.K. increased by 0.5%, beating expectations for a 0.4% increase. And according to the report, construction activity was “driven predominantly by a 4.0% increase in new private housing work,” which is a good sign for the U.K. housing market.

Up next is the U.K.’s July trade report. And that showed that the U.K.’s trade deficit narrowed from £10.7 billion to £10.0 billion, which is great because the consensus was that it would widen to £11.7 billion.

Even better, the smaller deficit was due to total exports growing by 2.0%, which was only partially offset by the 0.4% increase in imports.

And finally, we have the U.K.’s July GDP report, which showed that the British economy expanded by 0.3% month-on-month, which is a tick faster than the expected 0.2% increase, and a solid start for Q3 2018.

This brings the three-month moving average to 0.6%, which is the best reading since August 2017. The year-on-year reading also looks good since that came in at +1.6%, which is faster compared to July’s annual reading of +1.3%.

As already mentioned earlier, total industrial production was a disappointment. However, the GDP report showed that services rose by 0.3%. And that plus the 0.5% increase in construction output were more than enough to offset the weakness in industrial output.

Brexit-related updates

There were some Brexit-related headlines during the session. And first up is this tweet from E.U. Chief Brexit Negotiator Michel Barnier.

That’s the good news. The bad news is that Former U.K. Junior Brexit Minister Steve Baker said earlier that British PM Theresa May’s Conservative Party may suffer a “catastrophic split” at the Sept. 30 – Oct. 3 Conservative Party conference since 80 Conservative MPs (out of 315) supposedly want to rebel against Theresa May’s leadership.

In other news, Theresa May’s spokesman announced earlier that Theresa May and her top people will meet on Thursday supposedly to “discuss preparations for a possible ‘no deal’ Brexit,” as a Reuters report put it.

Risk-friendly start in Europe

The major European equity indices had a wobbly start but they quickly got their act together and began charging broadly higher, which is a clear sign that risk-taking was the dominant sentiment in Europe.

And according to market analysts, the banking sector outperformed largely because of strong demand for Italian banks due to the surge in demand for Italian bonds.

And Italian bonds were in demand, market analysts say, because of Italian Economy and Finance Minister Giovanni Tria’s comment over the weekend that:

“As the government puts words into actions, the (bond yield) spread will return to more normal levels.”

And to give that comment some context, I noted in last week’s EUR recap that the euro had a good run last week (before the selloff on Friday), thanks to positive comments from Italian government officials, promising that they’ll place nice with the E.U. by following the E.U.’s budget rules, which eased political uncertainty and revived demand for Italian assets.

Well, what Tria is saying here is that if the Italian government will follow the E.U.’s budget rules, then he predicts that Italian bond yields will drop.

  • The pan-European FTSEurofirst 300 was up by 0.41% to 1,466.66
  • Germany’s DAX was up by 0.64% to 12,033.86
  • The blue-chip Euro Stoxx 50 was up by 0.62% to 3,311.05

Major Market Mover(s):

EUR

The euro was the biggest winner of the morning London session and is also currently the second top-performing currency of the day (so far), losing out only to the higher-yielding Aussie.

There weren’t any direct catalysts, but we’re probably seeing an extension of last week’s theme, namely demand for the euro because of the Italian government’s conciliatory tone towards the E.U.

EUR/USD was up by 40 pips (+0.35%) to 1.1571, EUR/JPY was up by 57 pips (+0.45%) to 128.55, EUR/CHF was up by 79 pips (+0.71%) to 1.1269

CHF

The Swissy parted ways from the euro and is currently on the opposite end of the spectrum since the Swissy was not only the weakest currency of the morning London session, but is also the biggest loser of the day (so far).

The safe-haven Swissy was very likely weakened by the risk-on vibes in Europe. And market analysts specifically blamed the Swissy’s weakness on the strong demand for Italian bonds.

USD/CHF was up by 35 pips (+0.36%) to 0.9737, GBP/CHF was up by 79 pips (+0.63%) to 1.2596, AUD/CHF was up by 44 pips (+0.65%) to 0.6932

Watch Out For:

  • 7:00 pm GMT: U.S. consumer credit ($14.1B expected vs. $10.2B previous)