Europe Roundup: Sterling rallies on Brexit deal expectations, greenback slumps as Democrats aim to restrain Trump, European shares surge – Wednesday, November 7th, 2018

Market Roundup

  • EUR/USD 0.53%, USD/JPY -0.35%, GBP/USD 0.51%, EUR/GBP 0.02%
  • DXY -0.58%, DAX 1.05%, FTSE 1.32%, Brent 1.58%, Gold 0.61%
  • Democrats aim to restrain Trump after seizing U.S. House
  • Democrats pick up U.S. governorships but lose Florida, Ohio
  • Dollar's losses gather steam as U.S. stimulus hopes fade
  • EZ Sep Retail Sales YY, 0.8%, 0.7% f'cast, 1.8% prev, 2.2% rvsd
  • Germany Sep Industrial Output MM, 0.2%, 0.1% f’cast, -0.3% prev, 0.1% rvsd
  • Great Britain Oct Halifax House Price 3M/YY, 1.5%, 1.2% f'cast, 2.5% prev
  • Irish PM sees chances fading for Brexit deal in November
  • China sells first yuan bills in HK as currency pressures build

Economic Data Ahead

  • (1000 ET/1500 GMT) The Richard Ivey School of Business releases Canada's seasonally adjusted Ivey Purchasing Managers Index for the month of October. The index posted a reading of 50.4 in the prior month.
  • (1030 ET/1530 GMT) The Energy Information Administration (EIA) reports its Crude Oil Stocks for the week ending November 2.
  • (1500 ET/2000 GMT) The U.S. Federal Reserve is likely to report that consumer credit declined to $16.50 billion in September from $20.08 billion the month before.

Key Events Ahead

  • N/A U.S. Federal Reserve's Federal Open Market Committee starts its two-day meeting on interest rates.

FX Beat

DXY: The dollar index slumped to an over 2-week low as a greater majority of U.S. Democrats in the House put President Donald Trump's policies under greater scrutiny, fueling fresh political uncertainty. The greenback against a basket of currencies trades 0.6 percent down at 95.71, having touched a low of 95.68, its lowest since October 22. FxWirePro's Hourly Dollar Strength Index stood at -123.67 (Highly Bearish) by 1100 GMT.

EUR/USD: The euro rallied to a 2-week peak, as the greenback eased after the Democrats claimed their first majority in the House in eight years. The European currency traded 0.6 percent up at 1.1496, having touched a high of 1.1499, its highest since October 22. FxWirePro's Hourly Euro Strength Index stood at 1.93 (Neutral) by 1100 GMT. Immediate resistance is located at 1.1529 (October 8 High), a break above targets 1.1550 (October 22 High). On the downside, support is seen at 1.1382 (10-DMA), a break below could drag it till 1.1302 (October 31 Low).

USD/JPY: The dollar tumbled after rising to a 1-month peak earlier in the session, as the broadly expected U.S. midterms election results of a split Congress raised expectations that any major U.S. fiscal policy boost to the economy is unlikely for now. The major was trading 0.3 percent down at 113.08, having hit a high of 113.81 earlier, its highest since October 8. FxWirePro's Hourly Yen Strength Index stood at -82.16 (Slightly Bearish) by 1100 GMT. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. consumer credit change data. Immediate resistance is located at 114.10 (October 5 High), a break above targets 114.55 (October 4 High). On the downside, support is seen at 112.35 (October 22 Low), a break below could take it lower 112.01 (October 17 Low).

GBP/USD: Sterling surged to a fresh 3-week peak on the hope that Britain is close to securing a deal with the European Union less than five months before it leaves the bloc. The major traded 0.5 percent up at 1.3159, having hit a high of 1.3174 earlier; it’s highest since October 17. FxWirePro's Hourly Sterling Strength Index stood at 71.79 (Bullish) 1100 GMT. Immediate resistance is located at 1.3181 (October 15 High), a break above could take it near 1.3257 (October 12 High). On the downside, support is seen at 1.3011 (October 19 Low), a break below targets 1.2936 (October 23 Low). Against the euro, the pound was trading 0.1 percent down at 87.31 pence, having hit a high of 87.11, it’s highest since May 30.

USD/CHF: The Swiss franc rose to a 2-week peak as the greenback slumped after results of mid-term U.S. elections were seen as reducing the likelihood of legislative action  The major trades 0.7 percent down at 0.9953, having touched a low of 0.9952, it’s lowest since October 24. FxWirePro's Hourly Swiss Franc Strength Index stood at 56.05 (Bullish) by 1100 GMT. On the higher side, near-term resistance is around 1.0100 and any break above will take the pair to next level till 1.0145. The near-term support is around 0.9937 (September 23 Low) and any close below that level will drag it till 0.9897 (October 17 Low).

Equities Recap

European shares advanced, boosted by solid earnings updates and a rally in Spanish banks, while the greenback declined after U.S. midterm elections delivered no big surprise.

The pan-European STOXX 600 index rallied 1.1 percent at 366.68 points, while the FTSEurofirst 300 index gained 1.2 percent to 1,441.54 points.

Britain's FTSE 100 trades 1.4 percent up at 7,135.99 points, while mid-cap FTSE 250 rose 0.5 percent to 19,135.36 points.

Germany's DAX surged 1.1 percent at 11,609.46 points; France's CAC 40 trades 1.4 percent higher at 5,146.78 points.

Commodities Recap

Crude oil surged after falling to its lowest since August in the previous session, supported by a report that Russia and Saudi Arabia are discussing oil output cuts in 2019. International benchmark Brent crude was trading 2.1 percent up at $73.13 per barrel by 1042 GMT, having hit a low of $71.16 on Tuesday, its lowest since August 16. U.S. West Texas Intermediate was trading 1.8 percent up at $62.92 a barrel, after falling as low as $61.34 on Tuesday, its lowest since Mar. 19.

Gold prices rebounded from a 1-week low as investors sought safety from market volatility and uncertainty surrounding the fallout of U.S. mid-term elections results. Spot gold was 0.6 percent up at $1,233.76 per ounce by 1048 GMT, having touched a low of $1,222.93 earlier, its lowest since Nov. 1. U.S. gold futures climbed 0.5 percent to $1,232.2 per ounce.

Treasuries Recap

The Italian and Spain led euro zone bond yields down, with the Italian government bond yields falling 6-9 basis points across maturities, while the gap between Spanish yields and German bond yields was at its tightest in 3-1/2 weeks. Spain's 10-year bond yields fell over 4 basis points to 1.56 percent, narrowing the gap over German Bund yields to around 110 bps – the tightest in 3-1/2 weeks.

The Japanese government bond prices were little changed, with the benchmark 10-year JGB yield flat at 0.125 percent and the 30-year yield was also unchanged at 0.885 percent.

The Australian government bond futures eased, with the three-year bond contract and the 10-year contract each down 1 tick at 97.845 and 97.255 respectively. The New Zealand government bonds slipped as investors pared the already-slim chance of a rate cut, sending yields about 9 basis points higher across the curve.

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