Europe Roundup: Sterling slumps below 1.2700 amid Brexit fears, euro plunges as geopolitical tensions intensify, European shares advance – Tuesday, May 21st, 2019

Market Roundup

  • EUR/USD -0.15%, USD/JPY 0.15%, GBP/USD -0.2%, EUR/GBP 0.05%
  • DXY 0.12%, DAX 0.99%, FTSE 0.65%, Brent 0.4%, Gold -0.12%
  • China rebuffs Trump claim U.S. tariffs are making firms leave
  • U.S., China need to reverse course in trade row to help economy-OECD
  • Brexit shifts politics in Ireland as parties look north
  • BOJ's Kuroda issues fresh warning of broad fallout from trade war
  • UK factories report slump in demand after Brexit stockpiling push: CBI
  • Pain in Asia pushes dollar to 2-1/2 week high as investors seek safety

Economic Data Ahead

  • (1000 ET/1400 GMT) National Association of Realtors is likely to report that U.S. existing home sales rose 2.6 percent to a seasonally adjusted annual rate of 535,000 million in April, after easing to 5.21 million in March. 
  • (1000 ET/1400 GMT) The European Commission releases Eurozone's preliminary Consumer Confidence reading for the month of May. The index posted a final reading of -7.9 in the prior month.
  • (1730 ET/2130 GMT) API reports its weekly crude oil stock.

Key Events Ahead

  • (0830 ET/1230 GMT) Philadelphia Fed issues Non-manufacturing Business Outlook Survey for May in Philadelphia
  • (1000 ET/1400 GMT) Riksbank's Henry Ohlsson talks about development in payment market during conference “Navigating climate change and a new world order” in Copenhagen
  • (1045 ET/1445 GMT) Federal Reserve Bank of Chicago President Charles Evans participates in “Policy Session 3: How Has the Housing Finance System Evolved since the Crisis and Where Is It Headed?” panel in Amelia Island
  • (1200 ET/1600 GMT) Federal Reserve Bank of Boston President Eric Rosengren speaks before Economic Club of New York

FX Beat

DXY: The dollar index advanced to a 3-1/2 week peak as upbeat comments from Federal Reserve policymakers increased bets that the U.S. central bank will not cut interest rates this year. The greenback against a basket of currencies traded 0.2 percent up at 98.10, having touched a high of 98.12 earlier, its highest since Apr. 26. FxWirePro's Hourly Dollar Strength Index stood at 99.32 (Slightly Bullish) by 1000 GMT.

EUR/USD: The euro plunged to a 2-1/2 week trough as Italian Deputy Prime Minister Matteo Salvini's right-wing League party campaigned on a eurosceptic agenda for this weekend's European Parliament elections. The European currency traded 0.1 percent down at 1.1151, having touched a low of 1.1142 earlier, its lowest since May 3. FxWirePro's Hourly Euro Strength Index stood at -81.52 (Slightly Bearish) by 1000 GMT. Immediate resistance is located at 1.1218 (May 7 High), a break above targets 1.1262 (April 22 High). On the downside, support is seen at 1.1118 (April 25 Low), a break below could drag it below 1.1100.

USD/JPY: The dollar surged, hovering towards a 2-week peak hit in the previous session, as the 10-year U.S. Treasury yields rose to a 1-week high on the back of positive comments on the U.S. economy from policymakers. However, a prolonged trade war between Washington and Beijing capped upside. The major was trading 0.1 percent up at 110.21, having hit a high of 110.31 on Monday, its highest since May 7. FxWirePro's Hourly Yen Strength Index stood at 41.86 (Neutral) by 1000 GMT. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. existing home sales and speeches by Fed's Evan and Rosengren. Immediate resistance is located at 110.67 (61.8% retracement of 111.68 and 109.01), a break above targets 111.11 (78.6% retracement). On the downside, support is seen at 109.47 (May 10 Low), a break below could take it lower at 109.01 (May 14 Low).

GBP/USD: Sterling slumped to a fresh 4-month low below the 1.2700 handle, weighed down by growing expectations that Prime Minister Theresa May will fail to convince cabinet colleagues to support an amended version of her Brexit withdrawal deal. The major traded 0.2 percent down at 1.2696, having hit a low of 1.2685 earlier; it’s lowest since Jan. 15. FxWirePro's Hourly Sterling Strength Index stood at -77.85 (Slightly Bearish) 1000 GMT. Immediate resistance is located at 1.2823 (23.6% retracement of 1.3176 and 1.2709), a break above could take it near 1.2890 (38.2% retracement). On the downside, support is seen at 1.2668 (Jan. 15 Low), a break below targets 1.2615 (Jan. 4 Low). Against the euro, the pound was trading 0.1 percent down at 87.80 pence, having hit a low of 87.88, it’s lowest since Feb. 15.

USD/CHF: The Swiss franc eased, reversing some of its previous session gains, as the greenback rallied to a 3-1/2 week peak after Federal Reserve policymakers expressed confidence in the U.S. economy. The major trades 0.2 percent up at 1.0104, having touched a high of 1.0121 on Monday; it’s highest since May 10. FxWirePro's Hourly Swiss Franc Strength Index stood at 15.26 (Neutral) by 1000 GMT. On the higher side, near-term resistance is around 1.0159 (Apr. 18 High) and any break above will take the pair to next level till 1.0196 (May 6 High). The near-term support is around 1.0049 (May 13 Low), and any close below that level will drag it till 1.0000.

Equities Recap

European shares rallied after the United States temporarily eased restrictions on China's Huawei, easing trade tensions between both the economies.

The pan-European STOXX 600 index gained 0.5 percent at 379.02 points, while the FTSEurofirst 300 index surged 0.5 percent to 1,492.37 points.

Britain's FTSE 100 trades 0.6 percent up at 7,354.11 points, while mid-cap FTSE 250 rallied 0.7 to 19,455.74 points.

Germany's DAX rose 0.8 percent at 12,131.14 points; France's CAC 40 trades 0.4 percent higher at 5,377.95 points.

Commodities Recap

Crude oil prices declined as a prolonged trade war between Washington and Beijing could lead to a global economic slowdown, although escalating U.S.-Iran tensions and expectations that producer cartel OPEC will continue to withhold supply this year limited downside. International benchmark Brent crude was trading 0.1 percent lower at $71.94 per barrel by 0948 GMT, having hit a high of $73.39 on Monday, its highest since Apr, 26. U.S. West Texas Intermediate was trading 0.3 percent up at $63.36 a barrel, after rising as high as $63.79 on Monday, its highest since the May 1.

Gold prices plunged, hovering towards a more than 2-week low hit in the previous session, as the greenback surged on increasing bets that the U.S. Federal Reserve will not cut interest rates this year. Spot gold eased 0.1 percent to $1,275.74 per ounce by 0950 GMT, having touched a low of $1,273.56 on Monday, its lowest since May 3. U.S. gold futures also eased 0.1% to $1,275.40 an ounce.

Treasuries Recap

The U.S. Treasuries continued to remain flat during the afternoon session, after an overnight speech by the Federal Open Market Committee’s (FOMC) Chairman Jerome Powell focussed principally on his assessment of the risks posed by rising business debt. Today brings the speeches by FOMC members Harker, Clarida and Williams, besides, Powell’s again as well. The yield on the benchmark 10-year Treasury yield hovered around 2.418 percent, the super-long 30-year bond yields traded flat at 2.835 percent and the yield on the short-term 2-year also remained steady at 2.229 percent.

The German bunds remained flat during European trading session amid a muted trading session that witnessed data of little economic significance. Investors will be keeping an eye on the country’s 10-year auction, scheduled to be held on May 22 by 09:40GMT and the gross domestic product (GDP) data for the first quarter of this year, due to be released on May 23 for further direction in the debt market. The German 10-year bond yields, which move inversely to its price, traded flat at -0.086 percent, the yield on 30-year note hovered around 0.565 percent and the yield on short-term 2-year too remained steady at -0.628 percent.

Thw Australian government bonds jumped during Asian trading session as investors moved towards safe-haven assets following a degrading geopolitical condition surrounding the trade negotiations between the United States and China. The yield on Australia’s benchmark 10-year note, which moves inversely to its price, slumped nearly 3-1/2 basis points to 1.649 percent, the yield on the long-term 30-year bond suffered nearly 3 basis points to 2.295 percent and the yield on short-term 2-year traded nearly 2 basis points lower at 1.243 percent.

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