Forex news from the European morning session - 7 November 2018
Headlines:
- US MBA mortgage applications w.e. 2 November -4.0% vs -2.5% prior
- Italy government wins confidence motion in Senate on security decree
- Eurozone September retail sales 0.0% vs +0.1% m/m expected
- Russia and Saudi Arabia reported to start discussion on oil output cuts in 2019
- Ireland's Varadkar: Willing to consider a review clause in backstop
- UK October Halifax house prices +0.7% vs +0.8% m/m expected
- Democrats secure the needed 218 seats to gain control of US House
- Switzerland October foreign currency reserves CHF 753.3 bn vs CHF 739.7 bn prior
- Germany September industrial production +0.2% vs 0.0% m/m expected
- Pompeo's meeting with senior North Korean officials said to be delayed 'indefinitely'
- BOJ's Funo: Will be watching side effects of easing policies
- SNB's Zurbruegg says convinced central bank must continue current monetary policy
Markets:
- AUD leads, USD lags on the day
- European equities trade higher, E-minis up 0.8%
- US 10-year yields down 2.5 bps to 3.202%
- Gold up 0.42% to $1,232.29
- WTI up 0.98% to $62.82
- Bitcoin up 1.29% to $6,504
The session started off with mild dollar weakness as Democrats were already all but certain to claim the House while Republicans hold the Senate in the US midterm elections. There was no "blue wave/tsunami" but equities were tepid as results trickled in while the dollar was offered. EUR/USD was trading around 1.1450 while GBP/USD sat around 1.3110 with USD/JPY weighed lower around 113.00 as Treasury yields slumped. 10-year yields were down by almost 5 bps at 3.175% at the lows today.
There wasn't much else to distract from the focus on the US midterm election results and that saw the dollar continued to be pressed lower but there was a mild shift in equities sentiment when European traders joined the fray. A more positive tone helped to give a lift to US equity futures and the positive vibes are reverberating through as we head into the US session to come.
As the dollar remains pressured, EUR/USD made its way to test the 1.1500 handle before backing off slightly where it trades now around 1.1480-90. GBP/USD also moved to a high of 1.3175 before backing off to trade near 1.3150 currently. USD/JPY was less phased but is off the lows as well now at 113.20 as lower Treasury yields continue to weigh on the pair.
The more positive tone in equities helped to lift the aussie on the day as AUD/USD was trading near flat around 0.7250 earlier on before making its way higher during the session to touch 0.7300. The pair continues to trade near the highs now ahead of US trading.
The rest of the major bloc also gained against the dollar as a result and the loonie managed to find its way to break higher as well with oil prices rebounding following reports of production cuts being mulled by Saudi Arabia and Russia. USD/CAD was flat at the start of the session but then moved lower to break below 1.3000 and then now trades near the lows close to 1.3070 levels.
The session ahead will prove to be a litmus test for the dollar. Right now, the focus seems to be that a divided Congress will make for less fiscal stimulus to come around - particularly tax cuts - and that is weighing on the dollar and yields. Equities have so far reacted in a rather straightforward manner but let's see how US traders will interpret the results here.
Over the medium-term, I still expect yields to move higher as the Fed continues to raise rates so I don't really see any real major rally in Treasuries to come in the near-term. That should at least provide some tailwind for the dollar but the technical breaks (EUR/USD at 1.1500 and AUD/USD nearing the 0.7315 level) are hard to ignore. That said, the dollar could yet still be squeezed further on the back of the results here but I'd be looking for further buying opportunities as asset flows will still support the greenback.
