Market News & Insights
28 September 2018

The Italian Job

The euro found itself under some heavy selling pressures through the day yesterday, an initial high German CPI print saw the single currency find some demand but as that detail sank in and markets tied it in with higher inflation guidance already provided by the ECB, the selling soon began. The larger sell off however started with news coming from Italy, as leaders in the League and the Five Star raised their debt to GDP ratio accepting a higher deficit. This is likely to put Italy in the crosshairs once again and there is rising concerns on Italy’s ability to service its debt. German unemployment data already released this morning came in at record lows of 5.1%, while later this morning Eurozone CPI is due out and markets will now be expecting an upside surprise to the 2.1% originally expected. This may not be enough to boost the euro however, especially should we see Italian concerns rise, EURUSD is already down over 1.5% from the week’s highs. It’s month and quarter end today so we’ll have some rebalancing flows, models suggest that there is USD demand and euro supply so we’d expect to see the single currency weaken into 4pm, as it heads back into its lowest range bound, currently at 1.1630 are.

EURGBP dropped as well in tandem with euro weakness, but it wasn’t one way traffic for the pound. GBPUSD also dropped over 1% from the week’s highs with much of the movement in trade yesterday. In Brexit headlines BoJo took aim at Theresa May, saying she should scrap her plans, as he put forward a 6 point proposal that is to be quite honest, pure fantasy. The EU continue to send out rhetoric suggesting they are preparing for a no deal Brexit. Back into the fundamental picture and our focus today will be on the final print of Q2 GDP, with growth expected to be confirmed at 1.3% annually.

Stateside and the greenback rallied .8% yesterday and is currently over 1.3% higher from Wednesday’s pre FOMC lows. Another sideshow in US politics took plenty of attention yesterday but not to get distracted, it carries little economic impact but what is plainly obvious is the growing anti-republican/Trump agenda. Trade wars and tariff threats continue to simmer in the background and it’s becoming evident that this is beginning to weigh on global trade sentiment. Again with month end flows we are seeing broad based USD demand, with the exception of the JPY, so GBPUSD may well be looking at targeting back towards 1.3000 today.