Markets Rebound as Italian Worries Subside

Reports in the Washington Post today are suggesting that US President Trump plans to announce metal tariffs on Mexico, Canada and Europe set to come into force as early as tomorrow. The deadline for the EU’s relief from US tariffs expires tomorrow, June 1st. There has been a muted market reaction to the rumor but should it be officially announced volatility can spike higher as a result. USDMXN did react by selling off from 19.82115 to 19.71140.

The Italian President has told the Populist election winners that he is ready to engage with them when they are ready. This has given the Five Star Movement and League parties a second chance at attempting to form a government. The parties heavily criticised the President after he blocked their earlier cabinet nominations. Stocks were higher yesterday as Treasury yield rose with an easing in concerns when the Populist parties insisted that they have no plans to force Italy to leave the Euro or create an Italexit of the EU. EURUSD rallied from lows around 1.15000 to 1.1711 while the Italian stock market gapped higher from 21060.00 to close at 21855.00.

German Harmonised Index of Consumer Prices (YoY) (May) was 2.2% against an expected 1.8% from a prior reading of 1.4%. Harmonised Index of Consumer Prices (MoM) (May) was 0.6% against an expected 0.3% from a previous -0.1%. This data beat the previous reading on a yearly basis, bringing the data back in line with the high from early 2017. The beat in the monthly reading brings that data back above zero. EURGBP sold off from 0.87571 to 0.87320 following this data release.

US Gross Domestic Product Annualized (Q1) was 2.2% against an expected 2.3% from 2.3% previously. This data is holding just above 2.0% although it has slipped in the last two quarters from 3.3%. Gross Domestic Product Price Index (Q1) slipped to 1.9% against an expected 2.0% from 2.0% previously. This data has dropped back under 2% after rising above that level for the past two quarters. Personal Consumption Expenditures Prices (QoQ) (Q1) came in at 2.6% against an expected 2.7% from 2.7% previously. Core Personal Consumption Expenditures Prices (QoQ) (Q1) came in at 2.3% against an expected 2.5% from 2.5% previously. Personal consumption data has been rising steadily as Americans spend more on durable goods, consumer products and services. EURUSD moved higher from a low at 1.15940 to a high of 1.16754 as a result of this data.

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Bank of Canada Interest Rate Decision and Rate Statement were released yesterday evening. The Rate Decision was left on hold at 1.25% after the Bank hiked rates in January. The Rate Statement dropped the reference to being “cautious” on rates and on the need for “monetary policy accommodation”. It said higher rates will be needed to keep inflation near the target. A gradual approach will be taken, guided by incoming data and assessment of the economy’s sensitivity to rate movements. USDCAD plunged from 1.30111 to a low of 1.28351 as a result.

• EURUSD is up 0.14% overnight, trading around 1.16778.
• USDJPY is down -0.15% in the early session, trading at around 108.747
• GBPUSD is up 0.18% this morning trading around 1.33076.
• Gold is up 0.16% in early morning trading at around $1,303.25
• WTI is down -0.25% this morning, trading around $68.0

This article was written by FxPro