A positive Asian session generally carried over into the European hours
A positive Asian session generally carried over into the European hours. The Yuan rallied after the Chinese Premier said that devaluation is not on the table, while the AUD supported was in tandem. The USD was generally weaker across the board with Emerging Market FX as the main beneficiaries. The GBP spiked higher after domestic CPI data was above consensus.
The Nikkei and Shanghai Composite both finished higher by +1.1%, while core European equity markets held on to small gains led by the continued bounce in mining stocks.
10y bund yield briefly tested 50bps as gilts sold off due to CPI, however, the weakness in BTPs and a strong bond auction pushed bunds off lows. The UST curve was flat with small steepening in Eurodollars mainly led by a short sterling.
Metals were marginally higher with Asian equities and quiet in Europe.
In the key headlines for the European session yesterday:
- Chinese Premier Li: China will not devalue the currency to stimulate exports; recent fluctuations in yuan FX rate, not an intentional measure
- BOJ: keeps policy measures, forward guidance unchanged as expected; vote 7-2 on YCC and guidance, Kataoka & Harada dissent as expected
- K. Aug. CPI y/y: 2.7% vs 2.4% est.; Core CPI 2.1% vs 1.8% est.; ONS notes rise in recreation and culture sector +3.6% most since 2010
- Italy: Deputy PM Di Maio is looking for a 2.5% deficit/GDP level in the budget and is not asking Finance Minister Tria to resign according to Corriere; Repubblica reports Five Star party are looking at ways to pressure Tria
- API inventories according to people familiar w/data: Crude +1.3m, Cushing -1.6m, Gasoline -1.5m, Distillates +1.5m
The European session is taken over by the American one, with investors were looking into the American hours with a bit of an uncertainty as the Economic Calendar looks to be focused on Real Estate with Building Permits and Housing Starts being released.
However, investors focused on the EU summit where the ECB President Mario Draghi delivered a Key Note speech. He spoke about the future of economic policy in the euro area.
Global equities advance cautiously as currency havens keep a defensive footing on optimism U.S.-China trade differences may be resolved before the tariff war deepens. The dollar drops versus most of its Group-of-10 peers while risk-sensitive currencies lead gains. Treasuries stabilize as commodities extend their rebound while the pound rallies after U.K. Inflation beat estimates.
EUR/USD – Strong resistance at 1.1740-50 caps for now; 21-DMA sets a bullish cross on 55-DMA but fails for now to establish a short-term bullish trend; stays above the cloud to support longs.
GBP/USD – The pound is on the verge of entering a bullish trend on the weekly chart, but daily studies suggest mean reversion may be due before the U.K. currency targets July highs.
USD/JPY – Stays bullish as it escapes from cloud gravity and momentum studies still stay at neutral levels; caution for longs on Demark Sell Countdown to be completed Wednesday.
AUD/USD – A short-term bottom seems to be in place, break of 21-DMA resistance turns that level into support.
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