Risk on in FX, But USD Selloff Limited

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Market Drivers December 3, 2018
Euro pops on double dose of good news
UK PMI beats
Nikkei 1.00% Dax 2.67%
Oil $53/bbl
Gold $1231/oz.
Bitcoin $4041

Europe and Asia:
GBP UK PMI 53.1 vs. 52.0

North America:
USD ISM Manufcaturing 10:00

FX Markets saw a pop in risk appetite at the start of week’s trade, but the rally in the majors faded by London morning dealing with both euro and cable well off the session highs, while Aussie and kiwi held on to most of their gains.

The gap opening was sparked by news that US and China reached a temporary truce in their trade war with both sides agreeing to halt any additional tariffs for the time being as they continue to negotiate. Still, after the initial euphoria sentiment settled down a bit as many analysts pointed out that both parties merely pushed the issue off on the calendar and remained far apart on substantive matters. The best that can be said about the G-20 summit was that it did not exacerbate the tensions further, but it remains to be seen if global trade will pick up at start of 2019.

In Europe, the EC and Italy appeared to be moving towards a more conciliatory position on the budget with some headlines suggesting that Italian would scale back their deficit plans closer to the 2% target allowed by EU. Yet nothing substantive has yet been announced so EURUSD gave back its early gains and traded back below the 1.1350 level by morning session.

In UK, the early buying also dissipated in cable with the pair dropping towards 1.2750 after trading as high as 1.2825. UK PMI Manufacturing was a bright spot coming in at 53.1 but traders ignored the news as Brexit woes continued to dog the pair on reports that as many as one-third of PM May’s party may vote against her deal on December 11.

In North America today the market will get a look at ISM Manufacturing data which could surprise to the upside given the beat in Chicago PMI on Friday, but the true focus will be on FedSpeak with a slew of members making remarks in a variety of venues. Most important of all will be Vice Chair Clarida who is scheduled to be interviewed by Bloomberg at 11:30 GMT. If he continues to suggest that Fed is close to the neutral rate then anti dollars could see another boost in demand as the day proceeds

Boris Schlossberg
Managing Director

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