The euro had a good start but crashed and burned when ECB-related rumors made the rounds. The Greenback, meanwhile, got bid higher as the euro burned.
As for other currencies of note, up first is the pound, since it ignored hawkish rhetoric from BOE’s Saunders and slid lower during the course of the session.
Another noteworthy currency is the Japanese yen since it gave the Greenback a good fight, even though risk appetite was the more dominant sentiment in Europe.
- German retail sales: -1.2% vs. -0.5% expected, 1.3% previous
- French preliminary CPI m/m: 0.5% as expected, -0.3% previous
- German unemployment change: -5K vs. -6K expected, -8K previous
- Euro Zone flash HICP y/y: 1.5% vs. 1.4% expected, 1.3% previous
- Euro Zone core flash HICP y/y: steady at 1.2% as expected
- Jobless rate in the Euro Zone: steady at 9.1% as expected
- Challenger U.S. job cuts y/y: 5.1% vs. -37.6% previous
BOE’s Saunders speaks
Anyhow, in his speech earlier, Saunders reaffirmed his hawkish stance when he said the following:
“The prospective tradeoff is beyond my limits of tolerance, with the likelihood of an early elimination of slack and an extended period of above-target inflation. We do not need to be putting the brakes on so much that the economy weakens sharply. But, our foot no longer needs to be quite so firmly on the accelerator in my view. A modest rise in rates would help ensure a sustainable return of inflation to target over time.”
Pretty hawkish, yeah? He did temper his hawkish tone by noting the risks associated with Brexit, however, noting that Brexit “could undermine business and consumer confidence.”
Speaking of Brexit…
There were some Brexit-related drama during the morning London session. And most noteworthy among these was E.U. Brexit negotiator Barnier’s comment that trade talks were still “quite far” away and that “no decisive progress” has been made towards key Brexit issues so far, which contradicts U.K. Brexit Secretary David Davis’ own comment that “some concrete progress” has been made during the most recent round of Brexit talks.
Reuters released an intriguing report earlier during the session. And the said report cited “three sources familiar with discussions” over at the ECB.
And, well, these unnamed sources didn’t have a lot of good things to say about the euro’s strength.
The short of it is that the euro is just too strong and has a similar effect to tightening monetary policy. The implication, of course, is that the ECB’s expected tightening move will likely be slower than already anticipated by the market.
Anyhow, here are some of the juiciest (if you’re euro bearish) direct quotes from these unnamed sources:
“The exchange rate has become a bigger issue. It is now less favorable for an exit and a stronger argument for a muddle-through option.”
“The huge appreciation in the euro is already causing monetary tightening and is equivalent to an increase in interest rates.”
Another upbeat day in Europe
Risk-taking is still the name in Europe, at least as far as European equities are concerned, since the major equity indices were glowing gamma green during today’s morning London session.
According to market analysts, today’s bout of risk-taking was a continuation of yesterday’s relief rally, plus strong demand for blue chips and construction companies as the month comes to end.
- The pan-European FTSEurofirst 300 was up by 0.75% to 1,469.47
- Germany’s DAX was up by 0.61% to 12,075.50
- The blue-chip Euro Stoxx 50 was up by 0.52% to 3,405.50
U.S. equity futures were also supported.
- S&P 500 futures were up by 0.16% to 2,459.75
- Nasdaq futures were up by 0.13% to 5,942.62
Global bond yields dip
Despite signs of risk appetite in the European equities and U.S. futures markets, bond yields were down in the dumps during the session.
And according to market analysts from Reuters, this was due to the Reuters report I mentioned earlier, the one about the ECB being worried about the euro’s recent strength.
- French 10-year bond yield down by 1.27% to 0.667%
- German 10-year bond yield down by 1.10% to 0.359%
- U.S. 10-year bond yield down by 0.09% to 2.143%
Major Market Mover(s):
The euro had a good start, but got smacked lower across the board when Reuters released its report that cited unnamed sources as saying that the ECB is worried about the euro’s recent strength.
EUR/USD was down by 52 pips (-0.44%) to 1.1837, EUR/JPY was down by 49 pips (-0.37%) to 130.88, EUR/CAD was down by 64 pips (-0.41%) to 1.4977
The Greenback was the best-performing currency of the morning London session. There were no direct catalysts, but market analysts say that the Greenback’s strength was due to profit-taking by Greenback shorts and earlier positive U.S. data and selling pressure on EUR/USD because of the Reuters report, which applied buying pressure on the Greenback.
USD/CHF was up by 42 pips (+0.44%) to 0.9676, NZD/USD was down by 28 pips (-0.39%) to 0.7135, AUD/USD was down by 21 pips (-0.27%) to 0.7879
The pound was the second weakest currency of the session, despite hawkish rhetoric from Saunders. And according to market analysts, this was due to persistent jitters related to the ongoing Brexit negotiations and the lack of concrete progress.
GBP/USD was down by 59 pips (-0.46%) to 1.2856, GBP/JPY was down by 54 pips (-0.38%) to 142.14, GBP/CAD was down by 62 pips (-0.44%) to 142.15
Strangely enough, the yen was the second best-performing currency of the session, even though risk-taking was apparently the prevailing sentiment. As mentioned earlier, however, bond yields were in decline, and the yen was likely taking cues from that, rather than from overall risk sentiment.
NZD/JPY was down by 24 pips (-0.31%) to 78.89, AUD/JPY was down by 17 pips (-0.19%) to 87.11, CHF/JPY was down by 41 pips (-0.37%) to 114.24
Watch Out For:
- 12:30 pm GMT: Canadian GDP (0.1% expected, 0.6% previous)
- 12:30 pm GMT: U.S. initial jobless claims (237K expected, 234K previous) and core PCE price index (0.1% expected, same as previous)
- 12:30 pm GMT: U.S. personal spending (0.4% expectedm 0.1% previous) and income (0.3% expected, 0.0% previous)
- 1:45 pm GMT: Chicago PMI (58.7 expected, 58.9 previous)
- 2:00 pm GMT: U.S. pending home sales (0.4% expected, 1.5% previous)