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Risk-taking was the name of the game in Europe so the Kiwi and the Aussie were able to add to their gains, while the safe-haven currencies were kicked even lower, with the yen still getting the worst of it.

The yen did begin to take some ground from the Greenback after word got around that the WTO was setting up a panel to rule on U.S. tariffs and after a Fed-related rumor made the rounds. However, the yen still lost out to the Greenback in the end.

The euro is also noteworthy since it gave the Aussie and Kiwi a good fight and was the third best-performing currency of the session despite news (and earlier rumors) that the E.U. rejected Italy’s draft budget.

  • Spanish trade balance: -€3.30B vs. -€3.06B previous
  • U.K. public sector net borrowing: £8.0B vs. £5.6B expected, £2.0B previous

Major Events/Reports:

Italy’s budget rejected (again)

E.U. Commission Vice President Valdis Dombrovskis announced late into the session that:

“It is with regret that today we confirm our assessment that Italy’s draft budget plan is in particularly serious non-compliance.”

“With what the Italian government has put on the table, we see a risk of the country sleepwalking into instability.”

Dombrovskis then warned that “a debt-based Excessive Deficit Procedure is thus warranted.”

E.U. Economy Commissioner Pierre Moscovici also got some press time and aside from saying that E.U. finance ministers will meet to discuss Italy’s budget on Dec.3-4, he also said that:

“This step which we take today is the logical and unavoidable consequence of the decision taken by Italy’s authorities not to modify their fiscal targets.”

Salvini’s amusingly defiant reply

Italian Deputy PM and League Party leader Matteo Salvini was informed about the E.U. rejection of Italy’s budget and Salvini amusingly quipped that:

“A letter arrived from Brussels? I was expecting one from Santa Claus.”

“We will discuss it politely as we always have. We will exchange opinions. I will continue. If someone wants to persuade me that the pension reform was right, I will not be persuaded.”

“My mailbox is nearly full because of compulsive letter writers who spend their time writing little letters.”

Conte’s diplomatic reply to the E.U.

Italian PM Giuseppe Conte delivered a more … diplomatic statement on the E.U. rejection of Italy’s budget. However Conte also stressed that:

“The government is convinced about the validity of the budget framework.”

Conte tried to tone down his tone and sound more conciliatory, though, saying that:

“I trust there will be a constructive discussion with (Commission President Jean-Claude) Juncker on Saturday evening. We will have another look at our respective positions and assess how to move forward.”

WTO to set up panel to rule on U.S. tariffs

According to a “Geneva trade official” that was cited in a Reuters report:

“The United States and opponents of President Donald Trump’s steel and aluminium tariffs both confirmed their wish to litigate on Wednesday, triggering the procedure for World Trade Organization dispute hearings.”

This is not really all that new and, if true, would be the result of the request from Norway and the E.U. (way back on October) to establish a dispute resolution panel to verify the legality of U.S. tariffs on steel and aluminium.

Fed-related rumor

There was this dovish Fed-related rumor floating around during the session.

Commodities rally

Commodities have been rising higher since the earlier session. And almost all commodities were still in rally mode during the morning London session.

And it’s probably safe to attribute the commodities rally to the Greenback’s overall weakness. After all, a weaker Greenback means that globally-traded commodities become relatively cheaper to buy, especially for those who hold non-USD currencies.

And for reference, the U.S. dollar index was down by 0.27% to 96.45 for the day when the session came to a close.

Aside from Greenback weakness, commodities also got a noticeable boost when word got around that the WTO will be setting up a dispute resolution panel to rule on U.S. tariffs on aluminium and steel.

Also, some market analysts say that the risk-friendly vibes helped to drive up demand for base metals like copper.

Other market analysts, meanwhile, were attributing the surge in oil prices to API report’s findings that U.S. crude oil inventories fell, which fueled speculation that the official report from the EIA would also show a draw.

Oil benchmarks outperformed.

  • U.S. WTI crude oil is up by 2.64% to $54.84
  • Brent crude oil is up by 2.21% to $63.91

Base metals were in demand.

  • Copper was up by 0.81% to $2.789 per pound
  • Zinc was up by 0.86% to $2,563.25 per dry metric ton

Precious metals were also on the rise.

  • Gold was up by 0.25% to $1,224.20 per troy ounce
  • Silver was up by 0.99% to $14.410 per troy ounce

Risk appetite revived in Europe

Risk sentiment switched to “risk-on” during the morning London session since the major European equity indices opened higher and even hit fresh intraday highs before easing a bit late into the session.

And market analysts say that appetite for risk was revived because of the recovery in tech shares, as well as higher demand for banking shares because of expectations that Italy and the E.U. will compromise on Italy’s budget.

Of course, we could just be seeing some profit-taking after several days of risk aversion in Europe.

  • The pan-European FTSEurofirst 300 was up by 0.70% to 1,393.88
  • Germany’s DAX was up by 1.05% to 11,183.09
  • The blue-chip Euro Stoxx 50 was up by 0.83% to 3,142.05

Major Market Mover(s):

AUD & NZD

The risk-friendly vibes, Greenback weakness, and rising commodity prices allowed the Aussie and Kiwi to rake in even more gains during the morning London session.

AUD/USD was up by 22 pips (+0.30%) to 0.7254, AUD/CHF was up by 12 pips (+0.16%) to 0.7210, AUD/CAD was up by 19 pips (+0.20%) to 0.9633

NZD/USD was up by 25 pips (+0.36%) to 0.6838, NZD/CHF was up by 12 pips (+0.19%) to 0.6795, NZD/CAD was up by 22 pips (+0.24%) to 0.9080

JPY

The risk-friendly environment may have been great for the Aussie and the Kiwi, but it was toxic to the safe-havens, with the yen still getting the worst of it.

USD/JPY was up by 19 pips (+0.17%) to 113.05, AUD/JPY was up by 38 pips (+0.47%) to 82.01, NZD/JPY was up by 39 pips (+0.51%) to 77.31

EUR

The euro was the third worst-performing currency of the morning London session, which is a bit odd since the E.U. rejected Italy’s budget and warned about possible legal action.

There were no direct, positive catalysts for the euro’s rise during the session. But market analysts were pointing to rumors from earlier (that were later denied) about Salvini’s alleged openness to changing Italy’s fiscal plans to be more in-line with the E.U., as well as hopes that Italy will play nice and try to work towards a compromise with the E.U., thanks to Conte’s speech.

Of course, it’s also possible that the euro was just feeding off the Greenback’s overall weakness.

EUR/USD was up by 23 pips (+0.20%) to 1.1410, EUR/JPY was up by 46 pips (+0.36%) to 120.01, EUR/CAD was up by 16 pips (+0.11%) to 1.5153

Watch Out For:

  • 1:30 pm GMT: Headline (-2.6% expected vs. 0.7% previous) and core (0.4% expected vs. 0.0% previous) readings for U.S. durable goods orders
  • 1:30 pm GMT: U.S. initial jobless claims (215K expected vs. 216K previous)
  • 1:30 pm GMT: Canadian wholesale sales (0.3% expected vs. -0.1% previous)
  • 3:00 pm GMT: University of Michigan’s revised consumer sentiment (no change from 98.3 expected)
  • 3:00 pm GMT: CB’s leading U.S. index (0.1% expected vs. 0.5% previous)
  • 3:00 pm GMT: U.S. existing home sales (5.20M expected vs. 5.15M previous)
  • 3:30 pm GMT: U.S. crude oil inventories (2.5M expected vs. 10.3M previous)
  • 9:45 pm GMT: Visitor arrivals in New Zealand (-1.9% previous)