Market Drivers August 29, 2018
Euro drops below 1.1700
USDCAD tests on 1.2900 on news of dairy concession
Nikkei 0.15% Dax -0.09%
Europe and Asia:
USD GDP 8:30
The euro was lower in early EU dealing today on reports that Italian government asked the ECB to resume its QE bond-buying program in order to shield Italian bonds from a possible downgrade.
The euro broke below the 1.1700 figure as its muti-day short covering rally came to a screeching halt on renewed fears over the state of Italian finances. The country’s new populist government which promised massive increases in fiscal spending despite the fact that the country sports one of the highest GDP to debt ratios in the industrialized world reportedly asked the ECB to help absorb its debt issuance in order to counteract the sharp rise in Italian yields.
The ECB has been committed to normalizing its monetary policy and begin tapering its QE program, so it’s far from clear if the central bank will accede to Italian demands, but if it does nothing, it risks triggering another sovereign debt crisis in region’s fourth-largest economy and euro was notably shaky as a result of these developments as dipped to a low of 1.1670 in morning London dealing. The pair looks vulnerable and looks ready to test the 1.1650 support as the day proceeds.
Meanwhile, the loonie was much better bid on reports that Canada was willing to compromise on dairy tariffs in order to achieve a comprehensive three-way trade pact with US and Mexico. There is a lot of pressure on the Trump administration to bring Canada into the talks and seal a tripartite deal. Any failure to do so would almost certainly mean lack of ratification by Congress which is keen on preserving the status quo of NAFTA. With negotiations starting in DC today the loonie will remain in focus all day long and any positive news could quickly send USDCAD below 1.2900 figure by North American dealing.
Politics will be the dominant driver of trade today, but markets will also look at US GDP figures due 12:30 GMT. This is the second revision of the data, so impact may be muted but the market will want to see if there are any significant revisions to print. The anticipation is a minor trim to 4.0% from 4.1% but any dip to the 3 handle would be a psychological negative and could weigh on USDJPY which has been hovering on either side of 111.00 for the past few days. The pair has been practically stationary for the past few days as traders begin to reprice the prospect of 2 more rate hikes in 2018, so any negative surprise would only add to downward pressure on the pair.