Forex news from the European morning session - 22 July 2019

Headlines:

Markets:

  • NZD leads, GBP lags on the day
  • European equities a little higher; E-minis up 0.2%
  • US 10-year yields down 1.2 bps to 2.043%
  • Gold flat at $1,425.85
  • WTI up 1.3% to $56.36
  • Bitcoin down 0.6% to $10,466
EOD 22-07

It was a session largely bereft of key headlines as markets began turning their focus to key central bank decisions set to come over the next two weeks.

The larger focus remains on the Fed but with the FOMC meeting blackout period being observed between now and 31 July, markets will have to navigate through the remaining days without any Fedspeak guidance.

As such, equities were tepid for the most part while Treasuries didn't offer any firm direction for traders to work with to begin the new week.

In the currencies space, it was the pound who stole the limelight as the currency fell amid rising expectations that Boris Johnson will come out on top in the Tory leadership race. The result will be announced tomorrow and we already had the first notable resignation as Sir Alan Duncan handed in his letter in anticipation.

Cable fell from close to 1.2500 to a low of 1.2470 early in the session, before being nudged lower to lows near 1.2460 as Duncan resigned. Expect more resignations to follow once Johnson is confirmed tomorrow, with Philip Hammond being the notable name on that list, before Johnson has the chance to kick them all out.

Other than that, the yen held lower since Asia Pacific trading with USD/JPY hovering between 107.80-00 as large expiries seen at 108.00 ($3.4 billion rolling off on Wednesday) are helping to limit gains in the pair for the time being.

The kiwi is continuing its good run from last week as NZD/USD continues to challenge daily resistance around 0.6774-83 so let's see if buyers can chase a move higher this week.

Looking ahead, it's all about central bank focus now with traders still pricing in some added dovishness for both the ECB and Fed. The OIS market sees a ~36% probability of the ECB cutting it deposit facility rate by 10 bps this week while Fed funds futures still have a ~20% odds priced in for the Fed to cut rates by 50 bps next week.

Let's see how those expectations shift around during the week and that will ultimately dictate the market landscape over the course of the next few days.