Italian Premier unveiled as Europe Holidays
With no UK economic data on Friday, underlying Dollar gains continued to pressure Sterling to test support near the 1.3450 mark. The Pound failed to sustain the advance on the Euro and closed around the 1.1440 mark. Sterling suffered as a result of growing concern over tightening global financing conditions given the substantial current account deficit. The latest CFTC data revealed long Sterling positions continued to decline, reaching the lowest level for more than two months, limiting the scope for a further Sterling sell-off.
With a large chunk of Europe closed for Whit Monday Bank Holiday and no UK data, the markets will be looking at Tuesday’s UK inflation data for further evidence on whether the Bank of England could tighten monetary policy within the next few months.
Overnight, the Rightmove house price index rose 0.8% for May, although sales data was weak. An underlying lack of confidence and Dollar strength pushed Sterling to 1.3416 by 8am this morning. Brexit tension and ongoing uncertainty continue to erode support.
The US Dollar Index continues to power higher, up roughly 0.4% this morning over weekend strength. The Greenback seems to be too hot to handle these days, supported by strong incoming economic data and Treasury yields.
The upward move has been sustained by yields of the key US 10-year reference keeping the trade above the all-important 3.0% level, while recent auspicious developments from the US-China trade talks seem to have poured cold water on the likelihood of a trade war.
In the data space, Atlanta Fed R.Bostic, Philadelphia Fed P.Harker, and Minneapolis Fed N.Kashkari are due to speak later today.
In Italy, the 5-Star and Lega parties announced on Friday that they had completed their joint programme and would consult with their members whether to ratify the deal. Italian fiscal policy prompted concerns and German ire, especially if the government is determined to flout European Commission rules. Italian bonds continued to weaken sharply with a surge in yields over the week which undermined the Euro, especially with increased fears surrounding contagion risks.
The Euro declined to fresh 2018 lows against the Dollar at 1.1750 before a slight corrective recovery late in the session as the Dollar was unable to hold its gains. After the market close, 5-Star sources indicated that a large majority of members had backed the deal in an online referendum. Lega leader Matteo Salvini stated that an Italian Prime Minister had been chosen and the President will be informed of the choice today.
Whit Monday Bank Holiday is celebrated in the following countries: Germany, France, Austria, The Netherlands, Iceland, Denmark, Norway, Switzerland and Hungary. Canada will be putting their feet up for Victoria Day and Chile pitch in with Navy Day.
Data to watch:
00:50 JPY Imports (YoY) (Apr)
00:50 JPY Merchandise Trade Balance Total (Apr)
00:50 JPY Adjusted Merchandise Trade Balance (Apr)
00:50 JPY Exports (YoY) (Apr)
09:00 EUR EU Financial Stability Review
n/a USD OPEC meeting
13:30 USD Chicago Fed National Activity Index (Apr)
17:15 USD FOMC Member Bostic speech
19:05 USD FOMC Member Harker Speech
22:30 USD FOMC Member Kashkari Speech