Forex news from the European morning session - 11 December 2018
Headlines:
- Italy's Tria says government won't make major changes to the budget
- China is said to move on US car tariffs cut that Trump tweeted on earlier
- UK PM spokesman says government will bring deal back for vote before 21 January 2019
- Italian govt source says Conte unlikely to suggest any new deficit target in meeting with Juncker
- US November NFIB small business optimism index 104.8 vs 107.3 expected
- Germany December ZEW survey current situation 45.3 vs 55.8 expected
- UK October average weekly earnings +3.3% vs +3.0% 3m/y expected
- EU reportedly insisting that May won't get backstop clarification that will carry any legal weight
- Juncker says that he is surprised by Brexit turn of events
- Ireland's Coveney: May did not say that she wants backstop to be removed
- What next for the Dancing Queen as May has a wobble?
Markets:
- GBP leads, USD lags on the day
- European equities higher; E-minis up by 0.9%
- US 10-year yields up 2.8 bps to 2.886%
- Gold up 0.15% to $1,246.37
- WTI up 1.16% to $51.59
- Bitcoin down 1.84% to $3,338
The session played out in a rather straightforward manner with the dollar on the back foot for the most part while risk recovered as China continues to deliver the goods on the trade front. The positive headlines already stemmed from Asian trading which saw the dollar slip a little against the rest of the major bloc and that sentiment continued into European trading with risk currencies and the pound taking advantage of the dollar's setback.
GBP/USD started the session around 1.2570 levels but quickly moved above 1.2600 as the pound faded some Brexit negativity on the day, and then reached a high of 1.2639 after UK real wages rose at its fastest pace since December 2016. The pair then fell back towards 1.2620 before trading in a range of 1.2600-20 as the rest of the session played out.
EUR/USD also managed to post decent gains as the pair began trading around 1.1370 before moving up to test the 1.1400 handle as the dollar slipped after reports on China potentially cutting car tariffs back to 15% after the retaliatory hike to the current 40% earlier in the year. The pair now trades around 1.1380 as large expiries and offers at the figure level is keeping a lid on price action for the day.
There was less movement elsewhere with AUD/USD trading around 0.7200-20 for the most part but raced to a high of 0.7224 on the back of the China news as risk jumped on the headlines. E-minis also raced to gains of 0.8% before extending it to just below 1.0% currently ahead of US trading.
Despite the improvement in risk, USD/JPY traded in a more subdued manner around 113.00-113.20 for the most part. The pair is unable to catch a bid as the dollar remains weak in trading today.
There wasn't much new developments to the Brexit saga as we await Theresa May to meet with European leaders later today to see if she can manage to get the much needed legal assurances on the backstop; which still seems unlikely at this point. Meanwhile, Italy's revised budget plan appears to have hit a snag as the populist government is unwilling to lower it to match the European Commission demands; more so after Macron's promises to raise minimum wages and abolish a tax on pensions.
