US Open Preview – Sterling ticks down to fresh 7-month lows ahead of Parliamentary vote

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XM Market Review
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Here are the latest developments in global markets:

  • FOREX: In the absence of key data releases, the dollar was trading flat against the safe-haven yen at 110.04 , while the dollar index was also steady at 95.07 as investors were eagerly waiting to see how the tit-for-tat game between China and the US will evolve. The euro continued to struggle for the second day, changing hands lower at 1.1557 (-0.26%), with the European Commission giving its final approval for tariffs to be imposed on imported US goods worth of 2.8 billion euros. The measures will take effect this Friday. Meanwhile, ECB Governing council member Francois Villeroy clarified that there will not be any change in interest rates “until at least summer 2019” as ECB chief, Mario Draghi, messaged yesterday, while ECB member Ewald Nowotny said that euro/dollar could see further depreciation. Pound/dollar remained under pressure, falling to a seven-month low of 1.3146 before it inched up to 1.3180 (-0.07%) ahead of a Brexit vote in the House of Commons later today. If lawmakers favor the changes in May’s Brexit plan, a “hard Brexit” could be accepted by the government if talks fail to progress. Otherwise, a defeat could put May’s leadership at risk again. Euro/pound was down at 0.8784 (-0.13%). In antipodean currencies, aussie/dollar and kiwi dollar were moving in opposite directions. Aussie/dollar improved to 0.7393 (+0.15%) in the absence of any new trade threats, while kiwi/dollar declined to 0.6887 (-0.17%) after Westpac’s Q2 consumer confidence index missed forecasts earlier today. Dollar/loonie recorded a respectable rally for the fourth consecutive day, breaking above the 1.33 key-level before it slid to 1.3295 (+0.10%). China’s yuan managed to advance against the greenback after the People’s Bank of China lowered its midpoint rate per dollar less than analysts forecasted, with dollar/yuan onshore retreating to 6.47 (-0.14%).
  • STOCKS: European stocks erased part of yesterday’s losses, which were fueled by concerns over the US-China trade spat. The pan-European STOXX 600 and the blue-chip Euro STOXX were up by 0.63% and 0.73% at 1150 GMT, with all sectors being in the green. The German DAX 30 rose by 0.16%, the French CAC 40 climbed by 0.25% and the Italian FTSE MIB jumped by 0.64%. The UK FTSE 100 and the Spanish IBEX 35 posted a stronger rally, surging by 0.75% and 0.97% respectively. In Asia, benchmark stock indices closed in positive territory, while in the US, futures tracking the major stock indices were pointing to a positive open.
  • COMMODITIESOil prices erased today’s gains after Iran’s energy minister said that Iran is not in favor of higher oil prices, blaming the US for destabilizing the oil market by intensifying political tensions. Meanwhile, Iran’s OPEC governor expressed that OPEC and its allies should keep the current supply cut deal until the end of 2018 as was initially agreed despite Saudi Arabia and Russia supporting a supply hike.WTI crude and Brent were last seen at $65.01/barrel (-0.02%) and at $75.07/barrel (-0.01%%) respectively. In precious metals, gold eased further to $1,273/ounce as the dollar continued advancing.

Day Ahead: ECB Forum panel discussion attracting attention; US existing home sales on the calendar

Looking at the day’s upcoming events, the US Department of Commerce and the Bureau of Economic Analysis are scheduled to publish current account data at 1230 GMT. Analysts expect the current account deficit to have widened from -$128.2 billion to -$129.0 billion in the first quarter of 2018.

Remaining in the US, at 1400 GMT existing home sales figures for the month of May will be attracting interest. Growth in sales is projected to rebound from -2.8% m/m to 1.5% m/m.

In energy markets, investors will look to the EIA report on US crude oil inventories. According to forecasts, crude inventories are anticipated to drop by 1.898 million barrels in the week ending June 15 compared to a fall of 4.143 million in the preceding week. On the other hand, gasoline inventories and distillate stocks are anticipated to increase.

New Zealand will publish GDP figures for the first quarter at 2245 GMT. Investors will be cautious for any clues that could change RBNZ’s dovish narrative on interest rates.  Economic growth is expected to have slowed down further in the first quarter of 2018. Analysts are estimating New Zealand’s economy to have grown by just 0.5% in the three months to the end of March, easing slightly from the previous expansion of 0.6% recorded in the previous two quarters. On an annual basis, GDP is expected to have expanded by 2.7% versus 2.9% in the preceding period.

In terms of public appearances, at 1330 GMT, ECB President Mario Draghi, Fed Chairman Jerome Powell, Bank of Japan Governor Haruhiko Kuroda and Reserve Bank of Australia Governor Philip Lowe will be participating in a panel discussion on central bank policy at the ECB Forum in Sintra, Portugal.

On the political front, in the UK, with no major economic data releases on the agenda, investors are likely to focus on UK politics and the return of the Brexit bill back to the House of Commons at 1830 GMT today.

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