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The Greenback was broadly firmer and there were signs of returning risk aversion during the morning London session, so the Aussie and Kiwi were forced to return some of their gains and were the worst-performing currencies of the session.

The Greenback wasn’t the top-performing currency of the session, though, since the pound overpowered the Greenback easily enough.

Other than those four, the euro is also worth highlighting since it closed out the session mixed but a net winner despite positive Italy-related updates, thanks to selling pressure after the Ifo institute revealed that business sentiment in Germany deteriorated even further.

  • Ifo German  current conditions: 105.4 vs. 105.2 expected, 105.9 previous
  • Ifo German business climate: 102.0 vs. 102.3 expected, 102.8 previous
  • U.K. gross mortgage approvals: 39.7K vs. 38.9K expected vs. 38.7K previous
  • ECB overlord Draghi will give a testimony later
  • British PM Theresa May will speak before Parliament later
  • Italian PM Conte is expected to hold a cabinet meeting on Italy’s budget

Major Events/Reports:

Italy-related updates

There were some Italy-related headlines making the rounds during the morning London session. And the gist of it is that Italy want to play nice with the E.U. by lowering its deficit target.

As for the deets, first up is the comment from Armando Siri, economic adviser to Italian Deputy PM Salvini, that the government may consider “a little fine-tuning of the budget.”

That positive comment was preceded by Salvini’s comment over the weekend that the Italian government’s deficit target of 2.4% of GDP is not set in stone and that “it could be 2.2 percent or 2.6 percent.”

Anyhow, a Reuters report later made the rounds after Siri’s comments. And according to the Reuters report, two unnamed “government sources” claim that “Italy’s governing coalition may reduce next year’s budget deficit target to as low as 2 percent of gross domestic product to avoid disciplinary action from Brussels.”

Italian Deputy PM and 5-Star Leader Luigi Di Maio was asked about the rumors. And while Di Maio didn’t confirm that the government will slash its deficit target to 2.0%, he did say that as long as the Italian government can keep its promise to the Italian people, “then if the negotiation means that the deficit (target) must come down a bit, for us it’s not important.”

For his part, League Leader Salvini also didn’t confirm that the government will lower its deficit target to 2.0%, but he did confirm that there were indeed plans to lower the deficit target when he said that there has been “positive feedback” from Brussels because of Italy’s plan to lower its deficit target.

Risk-friendly start (but deteriorating)

Europe is starting the new trading week with a bit of risk-taking since the major European equity indices opened higher and then quickly added to their gains.

However, there were signs of returning risk aversion since the major European equity indices eventually came off their lows and then began drifting lower as the session progressed.

And market analysts say that the risk-on vibes from earlier were due to strong demand for Italian stocks and banking shares due to that rumor I mentioned earlier about Italy is supposedly planning to capitulate to the E.U.’s demands with regard to Italy’s budget.

As for the risk-off vibes later on, there’s no apparent catalyst for that, but the tech sector was the biggest underperformer so lingering concerns surrounding the tech sector may still be souring overall risk sentiment.

  • The pan-European FTSEurofirst 300 was up by 1.03% to 1,407.96 but off the day’s high at 1,412.54
  • Germany’s DAX was up by 1.25% to 11,332.23 but off the day’s high at 11,357.42
  • The blue-chip Euro Stoxx 50 was up by 1.16% to 3,173.65 but off the day’s high at 3,184.55

Major Market Mover(s):

AUD & NZD

The Greenback regained its footing and there were signs of risk aversion during the morning London session, so the Aussie and Kiwi were both forced to sound the retreat. Both comdolls are still net winners for the day (so far), though.

NZD/USD was down by 7 pips (-0.10%) to 0.6796, NZD/JPY was down by 8 pips (-0.10%) to 76.96, NZD/CHF was down by 2 pips (-0.03%) to 0.6780

AUD/USD was down by 14 pips (-0.20%) to 0.7251, AUD/JPY was down by 16 pips (-0.19%) to 82.11, AUD/CHF was down by 9 pips (-0.12%) to 0.7234

GBP

Despite the lack of catalysts, the pound was the one currency to rule during the morning London session.

And according to some market analysts, demand for the pound was being fueled by Brexit-related optimism after the E.U. endorsed Theresa May’s Brexit deal during the E.U. Summit.

GBP/USD was up by 25 pips (+0.20%) to 1.2846, GBP/NZD was up by 57 pips (+0.30%) to 1.8899, GBP/AUD was up by 70 pips (+0.40%) to 1.7715

USD

The Greenback barely edged out a win against the yen to claim the second top spot of the session.

There were no apparent catalysts, but it looks like the Greenback was boosted by safe-haven demand since it began to attract buyers when signs of returning risk aversion began to show.

USD/JPY was up by 5 pips (+0.04%) to 113.23, USD/CHF was up by 9 pips (+0.10%) to 0.9978, USD/CAD was up by 19 pips (+0.15%) to 1.3215

Watch Out For:

  • 2:00 pm GMT: ECB overlord Draghi will testify before the European Parliament Economic and Monetary Affairs Committee
  • 3:30 pm GMT: British PM Theresa May will speak before Parliament
  • 6:30 pm GMT: BOE Guv’nah Carney will give a short speech
  • 7:30 pm GMT: Italian PM Conte is expected to hold a cabinet meeting on Italy’s budget
  • 9:45 pm GMT: New Zealand’s trade balance (-$850M expected vs. -$1,560M previous)