Forex news from the European morning session - 16 November 2018
Headlines:
- Brexiteers said to expect no-confidence vote in Theresa May on Tuesday
- EU Brexit summit schedule said to be agreed upon
- Eurozone October final core CPI +1.1% vs +1.1% y/y prelim
- Michael Gove is said to have decided to stay on
- No-confidence motion against Theresa May said to be underway
- ECB's Draghi: Slowdown has raised questions about strength of growth outlook
- UK PM May: Believes that we got a good deal with the EU
- UK PM May: Will appoint a Brexit secretary over the coming days
- Dombrovskis: Italy is openly defying EU budget rules
- US' Hagerty: Japan needs to reduce auto exports to US
Markets:
- GBP leads, NZD lags on the day
- European equities mixed, off the highs; E-minis down 0.4%
- US 10-year yields up 0.3 bps to 3.114%
- Gold up 0.21% to $1,216.00
- WTI up 1.72% to $57.43
- Bitcoin up 1.79% to $5,567
The focus of attention may have been on Brexit but it did not provide much spark for moves in the pound as we saw yesterday. Instead, it was Nvidia's poor earnings overnight that is overshadowing markets leading to losses in chip makers and semiconductor stocks in the equities space. And the negative sentiment is driving the yen higher while at the same time pushing the aussie and kiwi lower.
As for Brexit, the session started with focus on May's radio call and she maintained a confident front there helping the pound to hold steady. Cable steadily rose from 1.2800 to 1.2830 before reports of a no-confidence call trickled in and the pound fell. Cable dropped to 1.2980 before Gove's decision to stay on helped to lift sentiment a little and price moved back up to 1.2830.
The sort of headline gyrations there showed how much liquidity has been sapped out of the pound after yesterday's volatile movement. Price now steadies back around the 1.2800 handle ahead of US trading. Although the spot market is a little indecisive thanks to the lack of flows, the options market continues to highlight that there is lingering volatility and where the risks lie for the pound.
1-month implied volatility in the pound remains at elevated levels last seen since the Brexit referendum in 2016, while 1-month risk reversals in GBP/USD continue to fall signalling that the skew is still heavily favouring a move lower in the pound:
As mentioned above, the other key story in markets has been the drag in equities sentiment thanks to Nvidia's poor earnings overnight. USD/JPY started the session around 113.40 but slowly moved lower towards 113.20 levels as sentiment continued to sour throughout the session.
At the same time, that led to declines in AUD/USD and NZD/USD as both pairs now just sit off session lows ahead of US trading. Both currency pairs softened during the session in a slow and steady march lower as risk continued to sour.
EUR/USD traded a bit more rangy with the pair rising to a high of 1.1368 earlier as the dollar was a little weak and the pound gained. But then, as the pound fell the euro followed suit and failed to recover thereafter, with EUR/USD now sitting near the lows around 1.1330 as we approach the US session.
