The Euro is retreating because of the Italian crisis and reaching 1.1607 as the lowest price
Italian markets plummeted in thin twin-center holiday trading weighed by fears of a fresh election. Yesterday, Italian President Mattarella rejected the nomination of Paolo Savona for economics minister, a known Eurosceptic. Mattarella has asked a former IMF economist, Carlo Cottarelli to form the government. The anti-establishment 5-star and far-right League parties did not like the move and have threatened to impeach Mattarella.
Outlook: With both London and New York out for holiday, the European bond and stock markets moved the most. Italian stocks ended down 2.1%. Germany’s Dax fell 0.6%. Italy’s 10-year bond yield jumped 22 basis points to 2.66%. German 10-year Bund yields fell 7 basis points to 0.34%. The gap between Ten-year German and Italian bond yields widened to the largest in over four years. The Euro slipped anew, trading to fresh 6-month lows at 1.1607 before rallying at the close.
Trading View: The Dollar Index (USD/DXY) climbed 0.3% to 94.415 (94.253), mainly the result of the weaker Euro. The USD Dollar was little-changed against the British Pound (1.3308), Japanese Yen (109.42), and Australian Dollar (0.7545). The Dollar saw modest gains versus the Swiss Franc to 0.9935 from 0.9902 yesterday. The Kiwi had a good day, rallying 0.46% against the Greenback to 0.6942.
Asia has little out today apart from Japanese Unemployment rate for April. US and UK markets re-open today with a light economic calendar.
Oil prices declined for the second day running on the Saudi Arabia-Russia supposed agreement to limit output. This took the pressure off some Emerging Market Currencies. The Indian Rupee rose 0.5%. The Turkish Lira rallied 2.24% against the Dollar to 4.5800 from 4.70 yesterday.
The yield on the US Ten Year bond slipped further to 2.90% (2.93%) in thin volume trading due to fall in European markets.
The Dollar Index (USD/DXY) traded to 94.496 highs before closing at 94.415. Immediate resistance lies at that 94.50 level. A sustained break of could see us to the 95.00/95.50 strong resistance. Immediate support can be found at 94.25 and then 94.00. Today should see more of the same unless we get more fireworks in Europe. Likely range 94.00-94.50. Prefer to sell rallies.
EUR/USD – initially rallied to 1.2728 in early Europe after opening in Asia at 1.1652. The Euro reacted positively to Mattarella’s rejection of Savona as economics minister, instead of asking Cottarelli to try and form the government. This was rejected by both 5-star and League parties which saw the Euro tank. EUR/USD slid to 1.16074 before rallying to close at 1.1625. Immediate support lies at the 1.1600 level. The next support comes in at 1.1570 and then 1.1550. Immediate resistance can be found at 1.1660 and then 1.1690. Improvement in Euro-area economic data and Italian politics could see a relief rally for the Euro. Likely range today 1.1610-1.1680. Prefer to sell rallies above 1.1700.
USD/JPY – closed little-changed at 109.44 (109.42 yesterday). The Dollar traded to 109.829 high as risk sentiment improved with US-North Korea summit news. Europe’s woes saw USD/JPY dip to 109.234 overnight lows. USD/JPY has immediate support at 109.20 and then 108.80. Immediate resistance can be found at 109.80 and then 110.00. With the US Ten-year yield closer to 2.9%, USD/JPY is a sell on rallies. Likely range today 109.10-109.80. Prefer to sell rallies.
AUD/USD – closed flat at 0.7546. AUD/USD traded to 0.7581 overnight high where it was capped by fresh sellers. The Aussie then traded to a low of 0.7540 on lower commodity prices weighed by Oil. There is little in the Australian calendar today. AUD/USD has immediate resistance at 0.7580 and then 0.7600. Immediate support can be found at 0.7540 and 0.7520. Likely range today 0.7530-80. Prefer to buy dips.
GBP/USD – closed with mild gains to 1.3308 (1.3300 yesterday). Trading was thin without London’s participation. GBP/USD traded to 1.3340 highs overnight which is where immediate resistance lies. Sterling has immediate support now at 1.3290-1.3300. A move lower in the Euro will pressurize the Pound. With no major data until Friday (UK Manufacturing), geopolitics and the US Dollar will dictate Sterling’s moves. Likely range today 1.3300-1.3360. Look to trade this range.
USD/ZAR – The rand (USD/ZAR) gained 0.4% in early trade on Monday morning, in the wake of rating agency S&P choosing to keep SA's sovereign credit rating unchanged in a late-night announcement on Friday.
“There were no real surprises at all, with S&P sticking to its previous assessments and reaffirming what they have always maintained about the economy,” noted Wichard Cilliers, director and head of dealing at Treasury ONE, in a morning note.
At 10:18 the local currency was trading at R12.45/$, after opening the week's trade at R12.51 to the greenback.
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