Volatile conditions were seen during the European session as there were multiple conflicting reports concerning the Italian Budget. An early tone was set by a Corriere article suggesting that populists were looking for a 2.4% deficit/GDP level, postponement of yesterday’s deadline-day meeting and further threats towards the Finance Minister.
The EUR/USD was offered below the 1.17 in response, as Italian 10y yield rose by 9bps through the open with consequent risk-off moves seen across all markets. The Budget meetings were eventually confirmed with League/Five Star still seeking more spending.
The Bund/BTP spread settled around 11bps wider after solid a BTP auction, with bunds selling-off after the German regional CPIs point towards a strong national print. The U.S. Treasuries rose through yesterday’s FOMC-highs with the curve marginally flatter.
The CAD weakened after Trump imposed auto tariff threats. Crude futures were initially supported by the U.S. Government, confirming that there is no intention to release from their Strategic Petroleum Reserves before Saudi supply reports caused a reversal.
The volatile European session is taken over by a rather hectic day for the American session. To start off, Economic data from the American session include the U.S. Final GDP and Core Durable Goods Orders, both of which have an effect on the markets especially after Wednesday’s FOMC decision to increase interest rates by 25 basis points to 2.25%.
There was also a full house of speakers yesterday from the U.S., U.K., and EU. The ECB’s President Mario Draghi was talking alongside members of the governing council Praet and Lane. The BOE’s Chief Economist Haldane and Governor Carney are said to be participating in a panel which Carney will be chairing.
The Bloomberg Dollar Spot Index rose to the highest level in more than a week as Italian politics weighed on the euro, which managed to pare some losses on finding support from strong German regional inflation data. The greenback advanced versus all Group-of-10 peers except the yen amid stronger Treasuries and with stock markets in defensive mode. Emerging-market currencies lingered near a three-week high as commodities consolidated recent gains.
EUR/USD – Failure to close above 1.1780 Fibonacci retracement keeps bears in the game; close below Sept. 24 low of 1.1724 opens room for a test of 55-DMA; longs need conversion line at 1.1716 to hold to keep the pair in consolidation mode given Trendstall suggests exhaustion of rally since mid-August. The pair fell to 1.1638 and closed at 1.1642. The immediate resistance is located at 1.1724 followed by 1.1800. Immediate support can be found at 1.1620 followed by 1.1525. Looking forward to trading in a possible range today from 1.1650-1.1750
GBP/USD – The Pound dropped to the level of 1.3073 and closed at 1.3079. range Signs of mean reversion accumulate; 55-DMA support pivotal for longs to target move above 1.33 handle; strong support near 1.3050. The immediate resistance for today is 1.3150-90 followed by 1.3275. Immediate support can be found at 1.3052 followed by 1.3000. Look for a possible trading range today from 1.3000-1.3150.
USD/JPY – Price action stays strong with July highs in focus. The pair rose to the level of 113.48. The immediate resistance is at 113.90 followed by 114.35. Immediate support can be found at 112.60 followed by 111.90.
AUD/USD – A short-term bottom seems to be in place; 55-DMA resistance caps for now. The Australian dollar fell to 0.7204 yesterday after rebounding to 0.7314 two days ago. Immediate support at 0.7200 with next support at 0.7141. The immediate resistance is at 0.7280 followed by 0.7362. Looking to buy dips with a potential range today from 0.7170-0.7280.
USD/ZAR – The rand on Wednesday surprised analysts by firming during the day and holding onto its gains even after the US Federal Reserve Bank raised interest rates. The Fed, as expected, raised interest rates by 25 basis points to 2.25% just after 20:00 South African time.
“The rand surprised by gaining momentum to trade at R14.11/$ shortly after the announcement was made,” noted Botes. Analysts had thought it more likely the rand would come under pressure if rates were hiked.
At 07:22 on Thursday the local currency was trading at R14.17 to the greenback, down 0.3% on the day.