Forex news from the European morning session - 18 December 2018
Headlines:
- ECB's Makuch says central bank may need to rephrase guidance if slowdown continues
- Trump takes another swipe at the Fed ahead of tomorrow's FOMC meeting decision
- Italy is reportedly said to cut 2019 growth forecast to win budget support
- 10-year Treasury yields fall to lowest levels since August
- Germany December Ifo business climate index 101.0 vs 101.7 expected
- Currencies are already casting their vote ahead of tomorrow's FOMC decision
- Moscovici says France won't be sanctioned over budget deficit
- Moscovici says working hard to ensure Italy does not face sanctions on budget
- Swiss government cuts 2019 growth and inflation forecasts
- EU reportedly still unconvinced on Italy's revised budget
Markets:
- NZD leads, USD lags on the day
- European equities mixed; E-minis up 0.3%
- US 10-year yields down 2.3 bps to 2.833%
- Gold up 0.17% to $1,248.01
- WTI down 2.87% to $48.45
- Bitcoin down 0.72% to $3,468
The session started with sluggish movement across most major currencies, with only the kiwi posting heavy gains from better business data in Asian trading. But as European traders sipped their morning coffee, they reached a consensus of not waiting to play the 'buy the rumour, sell the fact' card tomorrow and instead price in a dovish Fed ahead of the meeting decision tomorrow.
EUR/USD started the session close to 1.1340 levels but quickly moved to 1.1375 as buyers took near-term control by breaking above the 200-hour moving average. Price then continued its track higher to 1.1402 and settles near 1.1380 currently in what has been a session of straightforward dollar weakness.
GBP/USD was among the key beneficiaries of that as well with the pair rising from 1.2620 levels to also break above the 200-hour moving average and touch 1.2660 levels before backing back down to 1.2640. But as the dollar remains offered, the pair tracked higher to touch a high of 1.2706 in a swift move to the upside before settling between 1.2680-90 levels currently.
NZD/USD was already posting solid gains prior to the session start with the pair trading around 0.6860 as price action was capped by near-term resistance levels. But with the dollar weakening, the pair managed to move to a high of 0.6880 and is now holding above the 200-hour moving average as well, settling around 0.6870.
As currency traders priced in a dovish Fed, it also prompted a bit of a reaction in Treasuries as yields fell across the curve mid-way through the morning. 10-year yields fell to its lowest levels since end-August and that saw USD/JPY slip from 112.50 to a low of 112.25 before inching back up now to 112.40 levels. The 100-day moving average is the key level to eye for the pair today.
In other markets, oil continues to be beaten down following the settlement below $50 yesterday. Price fell from $49.10 to $48.55 in a quick move during thin liquidity before recovering to $49.15 only to fall back down to a low of $47.84 - down by almost 4% - at one point in the early morning. Although price has recovered a little to near $48.50 currently, technically it's still looking ugly for oil at the moment.
The drop in oil prices is what is failing to help the loonie gather bids against other major currencies with USD/CAD now at 1.3400 levels, ranging between 1.3400-20 for the most part today.
As we get closer to the FOMC meeting decision, expect markets to move towards a lull period (particularly after US trading today) as traders and investors globally will be waiting with abated breath on what the Fed decides and the language they send out tomorrow.
In the meantime, dollar positioning and risk remains the two key themes markets will be focusing on at the moment.
