Forex news from the European morning session - 6 February 2019
Headlines:
- US MBA mortgage applications w.e. 1 February -2.5% vs -3.0% prior
- Ireland's Varadkar: EU is in agreement that backstop is needed
- Tusk: EU27 will make no new offer on Brexit
- Northern Ireland's UUP says May is reluctant to delay Brexit beyond 29 March
- Talks on EU-US trade deal seem to be going nowhere - report
- EU's Verhofstadt tells UK that it is not very responsible to try and get rid of backstop
- Germany January construction PMI 50.7 vs 53.3 prior
- Germany December factory orders -1.6% vs +0.3% m/m expected
- Abe: Recognises BOJ has yet to meet price target, but what's important is job growth
- BOJ's Kuroda: Inflation expectations have improved recently, but still not sufficient
Markets:
- JPY leads, AUD lags on the day
- European equities mixed; E-minis flat
- US 10-year yields down 0.6 bps to 2.692%
- Gold down 0.2% to $1,313.10
- WTI down 0.2% to $53.58
- Bitcoin down 1.6% to $3,368
The aussie remains the highlight in the currencies space so far today as it extended losses from Asian trading after RBA governor Philip Lowe signaled a pivot in the central bank's stance to being more neutral; previously favouring rate hikes slightly. AUD/USD started the morning around 0.7160 but quickly fell as pressure from AUD/JPY selling also weighed on the aussie as it fell to a low of 0.7123 before holding just above that currently.
Meanwhile, the yen continues to be the leader as the currency gained momentum in early trades after a sudden dip in risk sentiment that saw US equity futures turn negative and US 10-year yields fall by 2 bps in quick succession. GBP/JPY took a peek under 142.00 to a low of 141.76 before recovering, with similar action seen across yen pairs in general as well.
As for USD/JPY, the pair clocked a low of 109.56 before coming back up to trade around 109.60-70 levels in the hours after.
German economic data disappointed once again and that saw EUR/USD slip from 1.1395 to a low of 1.1380 but the pair stuck around in a narrow range and now trades back around 1.1390-95 as traders continue to wait on further developments before breaking stride.
Despite all the doom and gloom on Brexit, the pound held steady throughout the session with cable hovering around 1.2940-70 for the most part following a brief dip to test the 3 October low @ 1.2925. Theresa May heads to Brussels tomorrow so all eyes will turn towards her meeting with European leaders then.
Looking ahead, we'll have US trade balance data for November to come (one of those data points delayed by the shutdown) and though the data may be dated, it could stroke a bit of the US-China trade rhetoric that has gone a bit stale so far this week. I wouldn't count on it but it's always best to be prepared.
Other than that, as mentioned earlier, just keep an eye on risk sentiment as the fall in AUD/JPY today may be a bellwether for further direction in risk assets/equities in the session ahead since the currency pair in itself is typically a barometer for risk.
