EUR Breaks Support Amid Wider Italian spreads and Firmer USD - US Market Open

2018-11-20 14:35:00

MARKET DEVELOPMENT – USD Hits Best Levels of the Day, while the Euro breaks through support

USD: The US Dollar has clawed back early losses to trade higher by 0.2%. As US equity markets continue to plunge, bringing US yields and Fed rate hike expectations lower, the outlook for the US Dollar is softening. As it stands, market pricing for a December hike is at 72%, down from the +80% seen a few weeks back. Alongside this, given the crowded net long positioning, the US Dollar is vulnerable to additional losses. As mentioned last week, USD bearish bets may be best expressed through USDJPY shorts. (Technical analyst Paul Robinson discusses his latest analyst pick on USDJPY)

EUR: The Euro is hovering at session lows, dipping below 1.14, having failed ahead of the 1.15 handle. Fresh 2018 wide bond spreads between Italy and German has played a factor in the bearish price action seen this morning. The uncertainty regarding Italian politics is set to increase as tomorrow will see the EC provide their opinion on the Italian budget and given that little in the budget has been altered, it is likely that the EC will carry out an “excessive debt procedure”.

AUD / NZD: The sell-off across risk assets has seen the Australian Dollar under pressure with the currency sitting at 0.6850, down 0.4%. However, despite the plunge in equity markets the Kiwi has not followed the Aussie and has been surprisingly firm with notable selling in AUDNZD potentially explaining the Kiwi upside.

Crude Oil: Ahead of the bi-annual OPEC meeting on December 6th, expectations have been growing that the cartel will look to cut oil output (by roughly 1-1.4mbpd) in order to prevent oversupply given the slowing demand growth, coupled with the surge in oil production by the US (currently producing at a record 11.7mbpd). However, the bounce in oil prices had been short-lived as Russia stated that they would want to take a wait-and-see approach with regard to a potential supply cut. Since this statement by Russia, oil prices are off 1% as the lack of cooperation from Russia dents sentiment in the energy complex, suggesting that the market is not buying the current plan by OPEC. For OPEC’s plan to lift oil prices, Russian involvement is needed to increase its impact.