Geo-Political Risk Leaves the EUR and GBP in the Spotlight

Earlier in the Day:

There were no material stats scheduled for release through the Asian session this morning, leaving the markets to respond to lingering geo-political risks, with U.S – China trade war chatter, the approaching EU Commission decision on the Italian coalition government’s 2019 budget and Brexit there to consider through the session.

While there were no material stats released through the session, the RBA meeting minutes from the 6^th November policy decision were released.

For the Aussie Dollar, the RBA meeting minutes provided nothing new, with the RBA noting that there was no reason for a shift in policy near-term, while the next move would likely to be a rate hike, with members assessing that it would be appropriate to hold the cash rate steady and for the Bank to be a source of stability and confidence as labour market conditions continue to tighten and inflation moves towards the Bank’s midpoint of target.

The Aussie Dollar moved from $0.72964 to $0.72977 upon release of the meeting minutes, before rising to $0.7293 at the time of writing, a 0.01% fall for the session.

Elsewhere, the Kiwi Dollar stood at $0.6842 at the time of writing, a gain of 0.04%, while the Japanese Yen was down 0.04 % to ¥112.6 against the U.S Dollar, risk aversion and a slide in the U.S Dollar in response to housing figures limiting the Yen’s losses early on.

In the Asian equity markets, the sell-off in the U.S spilled over to the Asian session, with the Nikkei and ASX200 down 1.06% and by 0.83% respectively, at the time of writing.

The Day Ahead:

For the EUR, economic data scheduled for release is limited to October wholesale inflation numbers out of German that are unlikely to have a material bearing on the EUR, while France’s 3^rd quarter unemployment rate could hit the EUR should the unemployment rate rise from 9.1% to 9.2%.

Market sensitivity to a slowdown in the Eurozone economy and the negative impact arising from a populous government running Italy are the negatives for the EUR at present, while a shift in sentiment towards the U.S economy and some dovish commentary from FOMC members has continued to support $1.14 levels near-term.

At the time of writing, the EUR was down 0.07% to $1.1446.

For the Pound, economic data scheduled for release through the day is limited to November CBI Industrial Trend Orders that are unlikely to have a material impact on the Pound, leaving the markets to focus the scheduled inflationary hearings and BoE Governor Carney’s views on inflation and the outlook on monetary policy, though we would expect Brexit chatter to have a greater influence, the BoE on hold until there is greater clarity on the terms of exit.

Brexit chatter through the day could include rising tensions in parliament should Theresa May fail to convince the Euro sceptics to align, though based on updates going into this morning’s Asian session, the Pound should find support, particularly if talks of a vote of no confidence continue to abate, EU negotiators, Theresa May and other government leaders taking the view that a deal is better than no deal.

At the time of writing, the Pound was down 0.02% to $1.2852, with Brexit news the key driver through the day.

Across the Pond, economic data scheduled for release through the day includes October building permits and housing starts.

Concerns over the outlook for the U.S housing sector have continued to build alongside U.S mortgage rates, with some recent numbers suggesting that there has been a pickup in inventories that has placed further downward pressure on property prices. A slide in November home builder confidence that fell by the most in 4-years weighed on the Dollar ahead of today’s figures.

We can expect the Dollar to respond to today’s stats, though any material moves may be on hold as the markets look to get a better sense on how the FED views the economic outlook, recently dovish commentary having muddied the monetary policy waters.

Outside the stats, geo-political risk will also influence, with any progress on trade talks with China likely to ease demand for U.S Treasuries and any improved sentiment towards Brexit and Italy’s budget also Dollar negative, though with a high degree of uncertainty to the outcomes of each, we can expect some choppiness near-term.

At the time of writing, the Dollar Spot Index was up 0.03% to 96.223, with Capitol Hill and geo-political risk the key drivers through the day.

For the Loonie, there are no material stats scheduled for release through the day, leaving the Loonie in the hands of crude oil prices, Monday’s choppy day  weighing on the Loonie at the start of the week.

The Loonie was up 0.01% to C$1.3170 against the U.S Dollar at the time of writing.