Forex news from the European morning session - 15 February 2019
Headlines:
- US and China reportedly reached consensus on some key issues during trade talks
- UK government spokeswoman: May focused on getting changes to the backstop
- Italy's Borghi: EU elections are last chance to change Europe, otherwise Italy will have to leave
- EU-UK Brexit talks said to be planned for Monday
- China president Xi: Trade negotiations with US will continue in Washington next week
- Eurozone December trade balance €15.6 billion vs €15.7 billion expected
- Market participants continue to turn more bearish on Eurozone inflation outlook
- UK January retail sales +1.0% vs +0.2% m/m expected
- Spanish prime minister Pedro Sanchez calls for general elections on 28 April
- Spain January final CPI -1.3% vs -1.3% m/m prelim
- UK MP Steve Baker: Government will collapse if it relies on opposition votes for Brexit deal
- China January M2 money supply +8.4% vs +8.2% y/y expected
Markets:
- NZD leads, EUR lags on the day
- European equities higher; E-minis up 0.1%
- US 10-year yields up 0.9 bps to 2.663%
- Gold up 0.3% to $1,316.75
- WTI up 0.7% to $54.80
- Bitcoin up 0.3% to $3,581
The session started off with simmering optimism surrounding trade talks in Beijing but that all changed as headlines came pouring in that both the US and China are working towards a memorandum of understanding in order to seal a trade deal next month.
Both parties will be continuing negotiations in Washington next week and markets are liking the more cooperative mood at the moment.
The aussie and kiwi started on the back foot as both currencies were weighed lower from the softer risk tones to in Asian trading. NZD/USD began the European morning around 0.6820 before slowly making its way higher to trade near the highs now above 0.6850. Likewise, AUD/USD made its way from 0.7080 levels to 0.7110 levels currently.
As risk sentiment improved, equities also got a boost and that kept the yen and dollar pressured on the session. The former was the more beaten up currency as even USD/JPY managed to recover from 110.30 to trade near 110.50 currently.
Despite negative Brexit headlines overnight, the pound shrugged off those worries for the most part as retail sales data beat expectations handily. Cable moved up from 1.2790 to 1.2815 in the aftermath of the report before dollar weakness helped to keep the pair underpinned around 1.2820 levels now.
The euro is the main laggard on the day as political risks are starting to resurface and that is keeping the single currency pressured alongside waning confidence in the economy. Spain is headed for its third election in four years while Italian lawmakers are already spreading their political agenda by making euroskeptic comments ahead of the European Parliament elections in May.
EUR/USD traded around 1.1280-90 at the start of the morning but has slowly made its way lower to just under 1.1270 now as sellers remain in control. The fact that markets are growing less confident about the ECB and the Eurozone inflation outlook isn't helping either, as EUR 5-year inflation swap forward falls to its lowest levels since October 2016; moving further away from the ECB's target of "close to but just below 2%".
