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Global market watch - 19th June 2018

The Buck is trading up this morning against all of its rivals except the safe-haven Yen and Swissy on more risk aversion after news about further potential Trump administration tariff measures against China yesterday evening coupled with a small downtick in US Treasury yields.  It was reported that President Donald Trump asked his administration to produce a new list of some $200B in tariffs against Chinese goods at about 10% which could be a serious negative on global trade in general.  The Greenback hit a fresh May 29 peak against the Euro, a seven-month high in its pairing with the broadly sold British Pound, touched a fresh one-year peak versus the Loonie, is at a fresh 13-month high against the Aussie, a three-week peak in its pairing with the Kiwi, and ticked up to about one percent below last week’s 17-month high versus the Mexican Peso also.  The US Dollar fell to an 8-day low versus the broadly stronger safe-haven Yen, and fell to a 5-day low against the Swiss Franc as a result of risk aversion on the new tariff announcement.  On the data front, US Housing Starts and Building Permits are set for release today.  Fed Chair Jerome Powell is on tap tomorrow to speak with several colleagues, including BoJ Governor Kuroda and ECB President Draghi, tomorrow after the US Current Account release.

The Canadian Dollar fell to a fresh one-year low versus the Greenback, touched a 43-day low on its pairing with the Euro, and  fell to a 2.5-month low against the Yen despite an uptick in oil prices as the news of more potential Trump administration tariffs hit the Commodity Currencies particularly hard.   Canada is the United States’ largest trading partner and the Trump administration’s measures could have a severe negative impact on the economy and even have a potential sway on at least the pace of the Bank of Canada’s (BoC) rate tightening.  There is no Canadian economic data so all eyes on trade news form the US at the moment.

The Euro fell to a fresh May 29 low against the Buck, erased some earlier gains versus the Loonie, and fell to a three-week low in its pairing with the Yen as risk-off dominated the market with a relatively dovish speech from European Central Bank (ECB) President Mario Draghi this morning, the escalating political uncertainty in Germany on immigration policy, and worse than expected EU Current Account data.  ECB President Draghi stressed today that the ECB would be patient in regard to the timing of their first rate hike, and reinforced the ECB statement from last week that they would likely leave the Minimum Bid Rate unchanged at 0.00% at least through the summer of next year.  Mr. Draghi noted that while EU inflation is picking up and the economy is getting stronger, global uncertainty is also on the rise.  He specifically pointed to the threat of global protectionism from US tariffs, rising oil prices on Middle East geopolitical risks, and increased risk of volatility in financial markets in general.   

Meanwhile the immigration issue in Germany could easily unwind German Chancellor Angela Merkel’s coalition as she has two-weeks to find an EU-wide solution to immigration.  If she does not, her Interior Minister Seehofer will implement his plan to turn migrants away at Germany’s border and will likely trigger her to remove him from his post which is very likely to cause her coalition to collapse.  In addition, there is still quite a bit of political uncertainty with the new populist government in Italy and post-Rajoy Spain as well. 

Eurozone Current Account was released at 28.4B, its worst since September, versus 30.3B forecast consensus, and 32.8B previous.  The German PPI MoM is scheduled for tomorrow along with another speech form ECB Prescient Mario Draghi which will be carefully watched as market participants seek more guidance on future ECB policy.

The Pound fell to a seven-month low versus the US Dollar, a 5-day trough in its pairing with the Euro, and a 20-day low against the broadly stronger Yen on heightened Brexit uncertainty ahead of tomorrow’s  key vote in the House of Commons on the issue and ahead of the Bank of England (BoE) meeting on Thursday morning.  Prime Minister Theresa May’s government is in a very delicate – if not untenable – position.  There is no UK economic data today with all eyes on the vote tomorrow and then the BoE monetary policy meeting on Thursday.

The Buck rose to a fresh 13-month high versus the Aussie Dollar and a three-week high in its pairing with the Kiwi as a result of a dovish market read on the Reserve Bank of Australia (RBA) Monetary Policy Meeting Minutes overnight combined with news of more potential Trump administration tariffs on China weighed heavily on the commodity weighted antipodean currencies.   The RBA omitted a clear line from the last two meetings in which they stated “members agreed this is was more likely that the next move on the Cash Rate would be up, rather than down,” which was conspicuously missing from the minutes released yesterday evening.  The potential of further US-China trade conflict is a major issue for the antipodean economies which depend on Chinese demand.  

The Yen was broadly stronger on risk aversion, and hit an 8-day high versus the Dollar, a 20-day peak in its pairing with Sterling, and a three-week high versus the Euro as a result of risk aversion from news about more potential US tariffs on Chinese goods combined with a downtick in US yields. There was no major Japanese data overnight after the disappointing trade balance yesterday.   The Bank of Japan (BoJ) Monetary Policy Meeting Minutes are scheduled for this evening with BoJ Governor Kuroda speaking along with many of his counterparts, including FOMC Chair Jerome Powell and ECB President Mario Draghi, tomorrow morning.

The Swiss Franc ticked up to a five-day peak in its pairing with the Dollar overnight on general risk aversion before erasing some of those gains due to EUR selling after ECB president Mario Draghi’s speech.  There was no Swiss data today but we do have the Swiss National Bank (SNB) monetary policy meeting tomorrow followed by SNB Chairman Thomas Jordan’s press conference.  The Swiss Trade Balance is also on tap tomorrow after the SNB Financial Stability Report in a busy release date for Switzerland overall.

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