Forex news from the European trading session - 5 May 2020
Headlines:
- European Commission says that EU law has primacy over national laws
- Germany's Bavaria plans partial tourism reopen at the end of the month
- ECB to discuss German court ruling in a meeting later today at 1600 GMT
- Irish foreign minister says that progress in Brexit talks has not been good
- UK April final services PMI 13.4 vs 12.3 prelim
- German judges partly dismiss ECB QE case
- Hong Kong announces further easing of restrictions
- Switzerland April CPI -1.1% vs -0.9% y/y expected
- UK's Hancock: There is no need to put post-Brexit trade talks on hold
- 40 million workers have been furloughed across Europe during the virus lockdown
- Australia PM Morrison: Safe travel zone with New Zealand 'some time away'
- Full statement of the RBA May monetary policy decision
- RBA leaves cash rate unchanged at 0.25%
Markets:
- CAD leads, EUR, CHF lag on the day
- European equities higher; E-minis up 1.1%
- US 10-year yields up 2.4 bps to 0.657%
- Gold down 0.2% to $1,698.08
- WTI up 9.9% to $22.40
- Bitcoin down 0.6% to $8,863
The big story of the session was that the German court ruled to allow the ECB to carry on its QE program but voiced a host of issues/concerns surrounding the matter.
The court deemed the program as 'unconstitutional' and delivered an ultimatum that the ECB fixes it within three months, or the Bundesbank will legally not be able to participate.
This presents legal complications as QE will certainly run longer for more than three months and then there's also the threat this could bring about legal challenges against PEPP.
Not only that, it is also a structural issue since this touches on risks to the euro as well.
The single currency whipsawed on the decision initially, moving to 1.0926 before settling back closer to 1.0900. But as European bonds and stocks sold off, the currency followed as it fell from 1.0900 to 1.0826 before holding just above that currently.
Amid the selloff in European assets, the dollar and yen gained some ground. Cable fell from 1.2450 levels to 1.2421 before recouping those losses.
Meanwhile, AUD/USD also eased from 0.6450 to 0.6417 before paring the decline as stocks bounced back a little in the aftermath of the court ruling decision.
That said, Italian bonds are still sitting much lower on the day as 10-year BTP yields are up by nearly 18 bps to 1.94%. That brings the yields spread between 10-year BTP and Bunds to 250 bps now, reflecting the rising risks in the region.
Elsewhere, oil prices continued to gain more strongly rising to $22.40 levels - posting gains of nearly 10%. That in turn is also helping to underpin the loonie on the session.
In other news, the RBA kept policy unchanged in a relative non-event much earlier in the day.
