FX News Today
- Wall Street suffered another bout of weakness inspired by declines in Treasury yields.
- The USA500 lost near 0.8% after a late selloff, with the USA30 off 0.66%, ending the recent run of gains.
- Stocks traded mixed in Asia, while European as well as US futures are posting slight gains ahead of today’s Fed minutes and Powell’s speech at the Jackson Hole symposium later in the week.
- A drop in European rates spilled over to Treasuries, with the long end outperforming. That compressed the yield curve again, one of the main factors behind last Wednesday’s plunge on Wall Street.
- The markets will remain focused on the Fed today with the release of the minutes from July 30, 31 FOMC with hopes for dovish signals. Nearly 70 bps in easing is expected over the rest of the year.
- Top negotiators from Japan and the US will meet this week to try and narrow the gaps in ongoing trade talks, but hopes that there will be substantial progress on the key issues agriculture and automobiles seem to be fading.
- Italian BTPs outperformed yesterday on hopes that new elections can be avoided and that an alternative coalition government can be found to bring at least the 2020 budget underway helped to underpin Italian assets on Tuesday and at least so far there is no sign of contagion risks.
- Germany meanwhile will sell its first 30-year Bund with a zero coupon, and yields in today’s auction could turn negative for the first time.
- The AUD remained underpinned by upbeat comments from the RBA on the growth outlook in yesterday’s minutes.
- The WTI future is trading at USD 56.36 per barrel.
Charts of the Day
- EURUSD bounced to 1.1100 highs on a short covering move, after failing to make any downside progress under Friday’s over 2-week low of 1.1066, along with another Treasury yield lurch lower. The pairing looks to be consolidating losses seen over the past week or so, and with sell-stops now said to be building around the 1.1050 level, a downside break is looking more likely. Not as dovish as expected FOMC minutes on Wednesday could save Euro bulls for now, though with the ECB primed to ease further, Germany poised for fiscal stimulus, the unknown impact of Brexit, and the political crisis in Italy, EURUSD looks set to test the 27-month low of 1.1027 seen on August 1.
- USDCAD rallied yesterday at 1.3344 a 2-month high, as WTI crude fell $1/bbl to $55.20, and as Canada manufacturing data came in on the soft side. USDCAD later pulled back toward 1.3310 as oil recovered some lost ground. The 200-day MA at 1.3305 becomes support now, after closing above the level on Monday. Resistance is the June 19 top of 1.3383.
Main Macro Events Today
- Consumer Price Index (CAD, GMT 12:30) – Canada’s CPI did not challenge the outlook for steady BoC policy this year. CPI slowed to a 2.0% y/y pace in June from the lofty 2.4% y/y clip in May. Inflation remains around the 2 percent target, with some recent upward pressure from higher food and automobile prices. Core measures of inflation are also close to 2 percent. Even though CPI inflation will likely dip this year because of the dynamics of gasoline prices and some other temporary factors, the annual and monthly numbers for July are expected to remain steady. As slack in the economy is absorbed and these temporary effects wane, inflation is expected to return sustainably to 2 percent by mid-2020.
- FOMC Minutes (USD, GMT 18:00) – The FOMC minutes, similar to the ECB Reports, provide an assessment as regards the views of the Fed’s policymakers about the interest-setter’s future stance and are usually a cause for FX turbulence.
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