Forex news from the European trading session - 2 October 2018
Headlines:
- ECB's Rehn says Italy budget deficit poses serious concerns
- Italy's Conte says that "euro is our currency" and "it is unrenounceable for us"
- EU's Dombrovskis says Italy's deficit plans are not compliant with EU rules
- Eurozone August PPI +0.3% vs +0.2% m/m expected
- Italy's Borghi: 2.4% deficit target is not a revolutionary move
- UK September construction PMI 52.1 vs 52.9 expected
- Italy's Borghi says leaving the euro is not in the government's programme
- Italy's Di Maio says government will not change 2.4% deficit target
- Italian bonds are taking it on the chin once again
- UK September Nationwide house price index +0.3% vs +0.2% m/m expected
- Lega's Borghi says Italy would solve most of its problems if it had its own currency
- RBA leaves cash rate unchanged at 1.50%
Markets:
- JPY leads, AUD lags on the day
- European equities trade lower, but off the lows
- Gold up 0.23% to $1,191.74
- WTI up 0.36% to $75.58
- US 10-year yields down 1.8 bps to 3.065%
- Bitcoin down 0.14% to $6,540
It's all about the risk off sentiment in trading so far today. Things started with the Hang Seng index leading losses in Asian trading, down by 2% after the lunch break. The negative sentiment started spreading with E-minis heading lower and that put a bid in the dollar and the yen prior to European trading.
The risk off mood spread to European equities and Italian bonds were met by a heavy bout of selling at the open again as less-than-conciliatory comments came out of lawmaker Claudio Borghi on Italy having its own currency to resolve its fiscal problems.
And with that, the negative tones continued to weigh on the rest of the major currencies while helping to put a bid in the yen, dollar, and swissie on the day. The aussie, kiwi and pound were the biggest losers on the session although they have come off the lows for the day heading into US trading.
EUR/USD started the session moving a little lower towards 1.1550 as the dollar and yen gained some traction early on. But things slowly got worse for the single currency as Italy's budget worries weighed and the pair fell to a low of 1.1505 on the day on the back of the risk off mood before rebounding to 1.1520 levels currently.
GBP/USD traded around 1.3030 levels early on before moving to 1.3010 as the risk off mood hit and the pound found itself falling even more once the 1.3000 handle was broken. Economic data certainly didn't help and the cable fell to a low of 1.2941 before recovering to 1.2960 levels currently.
USD/CAD is one of the pairs with lighter action on the day as the loonie remains a little bit more resilient than the other major currencies due to the optimism from the USMCA deal. The pair traded around 1.2820 to begin the session before making its way to a high of 1.2841 as the dollar gained on risk off sentiment. The pair now trades at 1.2830 levels ahead of US trading.
AUD/USD traded very much in tandem to NZD/USD as both the aussie and kiwi have been weighed down by negative risk sentiment. The former started the day with the RBA holding the cash rate steady and touched a high of 0.7238 before settling around 0.7220-30. But as the risk mood started to change the pair fell to the 0.7200 level before tracking lower to hit lows of 0.7162. Meanwhile, NZD/USD gradually moved lower on the day from 0.6600 towards a low of 0.6575 as the dollar advanced on the negative mood in markets. Both pairs are just off the lows in trading now.
Lastly, USD/JPY was more subdued in trading ranging from 113.60-90 for the most part as the yen advanced after European markets opened and that saw the pair fell to a low of 113.61 before recovering a little bit now to 113.85 as we await US traders to enter the fray.
As I mentioned in previous posts, there wasn't much to kick start the risk off mood in trading today but if markets are known for one thing, it is to fade the negative sentiment. Be on the look out for how US equities will perform later today. Should equities start turning the corner, expect that to help major currencies claw back some of the losses sustained against the dollar and the yen in the trading session ahead.
