Europe Roundup: Sterling at 28-month low on no-deal Brexit fears, euro consolidates ahead of ECB policy meeting, European shares bounce back – Monday, July 29th, 2019

Market Roundup

  • UK consumer lending growth sinks to 5-year low in June
  • Japan's Abe unlikely to meet S.Korea's Moon at U.N. in September: Sankei
  • Japan says GDP growth could slow to 0.9 percent on weakening global demand
  • China says hopes U.S. creates positive conditions for trade talks
  • Britain warns EU: change your 'stubborn' position or face no-deal Brexit

Economic Data Ahead

(1030 ET/1430 GMT) The Dallas Fed releases its Manufacturing Business Index for the month of July. The index posted a decline of 12.1 percent in the previous month.

Key Events Ahead

  • No Significant Event Scheduled

FX Beat

DXY: The dollar index rallied to a 2-month peak as better-than-expected U.S. GDP data cemented expectations that the Fed will go for a smaller interest rate cut of 25 basis points, rather than 50 basis points, to 2.0-2.25 percent. The greenback against a basket of currencies traded 0.2 percent up at 98.10, having touched a high of 98.11 earlier, its highest since May 31.

EUR/USD: The euro held near 2-year year lows, after the European Central Bank signalled last week that it is likely to cut interest rates deeper into negative and adopt more easing measures in September to boost the sagging eurozone economy. The European currency traded flat at 1.1125, having touched a low of 1.1101 on Thursday, its lowest since May 2017. Immediate resistance is located at 1.1171 (23.6% retracement of 1.1281 and 1.1101), a break above targets 1.1213 (61.8% retracement). On the downside, support is seen at 1.1101 (July  25 Low), a break below could drag it below 1.1070.

USD/JPY: The dollar edge up, extending gains for the third straight session, after White House economic adviser Larry Kudlow stated that the Trump administration has ruled out intervening in markets to devalue the U.S. dollar. The Bank of Japan will announce its monetary policy decision tomorrow, where it is expected to sound dovish and could try to put on a semblance of easing by changing its forward guidance. The major was trading 0.05 percent up at 108.65, having hit a high of 108.82 on Friday, its highest since July 10. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. Dallas Fed Manufacturing Business Index. Immediate resistance is located at 108.96 (July 9 High), a break above targets 109.54 (Jan. 29 High). On the downside, support is seen at 108.20 (61.8% retracement of 107.21 and 108.82), a break below could take it lower at 108.01 (50% retracement).

GBP/USD: Sterling plunged to a 28-month low after Britain warned the European Union it needed to change its position on Brexit if a no-deal exit was to be avoided. Moreover, an opinion poll showing Johnson’s Conservative Party has opened up a 10-point lead over the opposition Labour Party, stoked speculation that Johnson will call an early election. The major traded 0.5 percent down at 1.2315, having hit a low of 1.2311 earlier, it’s lowest since March 2017. Investors’ attention remains on the development surrounding Brexit, ahead of the U.S. fundamental drivers. Immediate resistance is located at 1.2406 (23.6% retracement of 1.2558 and 1.2311), a break above could take it near 1.2464 (61.8% retracement). On the downside, support is seen at 1.2280 (March 1, 2017, Low), a break below targets 1.2214 (March 3, 2017, Low). Against the euro, the pound was trading 0.5 percent down 90.32 pence, having hit a high of 88.91 on Thursday, it’s highest since June 21.

USD/CHF: The Swiss franc rose, halting a 2-day losing streak, as risk-sentiment weakened amid growing global uncertainties and trade pressures. The major trades 0.1 percent down at 0.9919, having touched a high of 0.9946 on Friday; it’s highest since July 9. On the higher side, near-term resistance is around 0.9951 (July 9 High) and any break above will take the pair to next level till 0.9999 (June 17 High). The near-term support is around 0.9871 (5-DMA), and any close below that level will drag it till 0.9817 (July 23 Low).

Equities Recap

European shares reversed early losses, boosted by a surge in the London Stock Exchange Group, while sterling plunged amid prospects of a no-deal Brexit under new British Prime Minister Boris Johnson.

The pan-European STOXX 600 index rallied 0.2 percent at 391.35 points, while the FTSEurofirst 300 surged 0.2 percent to 1,539.86 points.

Britain's FTSE 100 trades 1.2 percent up at 7,639.36 points, while mid-cap FTSE 250 gained 0.3 to 19,916.55 points.

Germany's DAX eased 0.05 percent at 12,415.23 points; France's CAC 40 trades 0.2 percent lower at 5,601.72 point.

Commodities Recap

Crude oil prices declined amid pessimism over U.S.-China trade talks and the prospect of slower economic growth globally that could reduce demand for crude. International benchmark Brent crude was trading 0.1 percent lower at $63.23 per barrel by 1023 GMT, having hit a high of $64.64 on Wednesday, its highest since July 17. U.S. West Texas Intermediate was trading 0.05 percent down at $56.17 a barrel, after rising as high as $57.62 on Wednesday, its highest since the July 17.

Gold prices surged as investors cautiously awaited the U.S. Federal Reserve meeting later in the week for indications of monetary easing in the world’s largest economy. Spot gold was trading 0.1 percent up at $1,419.87 per ounce by 1026 GMT, having touched a low of $1,410.77 on Thursday, its lowest since July 17. U.S. gold futures were flat at $1,418.60 an ounce.

Treasuries Recap

The U.S. Treasuries jumped during the afternoon session, ahead of the Federal Reserve’s monetary policy meeting, scheduled to be concluded on July 31 by 23:30GMT, where the federal funds rate is widely expected to be slashed by 25 basis points to 2.00-2.25 percent, accompanied by Chair Jerome Powell’s detailed speech. The yield on the benchmark 10-year Treasury yield slumped 2-1/2 basis points to 2.056 percent, the super-long 30-year bond yields plunged nearly 3 basis points to 2.574 percent and the yield on the short-term 2-year also traded nearly 3 basis points down at 1.842 percent.

The United Kingdom’s gilts gained during European trading hours ahead of the country’s manufacturing PMI for the month of July, scheduled to be released on August 1 by 14:00GMT and the Bank of England’s (BoE) monetary policy meeting, due on the same day by 16:30GMT for further direction in the debt market. The yield on the benchmark 10-year gilts, plunged 3 basis points to 0.658 percent, the 30-year yield rose slipped nearly 1-1/2 basis points to 1.334 percent and the yield on the short-term 2-year slumped nearly 2-1/2 basis points to 0.459 percent.

The Australian government bonds jumped during Asian session of the first trading day of the week as investors wait to watch the country’s consumer price inflation (CPI) for the second quarter of this year, scheduled to be released on July 31 by 07:00GMT. The yield on Australia’s benchmark 10-year note, which moves inversely to its price, slumped 3 basis points to 1.208 percent, the yield on the long-term 30-year bond plunged nearly 3-1/2 basis points to 1.865 percent and the yield on short-term 2-year too suffered 3 basis points to 0.859 percent.

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