Europe Summary and Highlights 19 Jun
Dollar backs off resistance tests, consolidating into w/e, US holiday
Oil takes talks delay in stride
European morning session
Oil proving relatively resilient to the tensions and halting progress of the next stages on Iran, as the meeting in Switzerland is cancelled - Brent actually -0.5% on the day even if it has slightly broken the run of lower highs.
Dollar, while generally still well supported, backing off the overnight high tests - EUR/USD bounces off the near- test of the 1.1410~ lows support for instance, cable +0.2% and 70 ticks off the lows after testing/holding lows just off 1.1350~.
US holiday and after some big moves this week, some consolidation/profit-taking into the weekend to be expected.
In the UK, Burnham wins the by-election (55% to 35% for Reform) to set up a leadership challenge soon – very much as assumed. Higher than expected UK public borrowing (GB23.3bn vs mkt 18.5, driven by interest rate costs) underscores the fiscal constraints. May retail sales higher than expected at 1.2%m/m vs mkt 0.5%.
Officials trying to be hawkish in Japan amid the major yen lows - BoJ’s Himino emphasising the need not to delay hiking amid risks of inflation overshoot from supply and demand side factors, reinforced by minutes to the April meeting highlighting one argument that hikes should come more quickly. FinMin Katayama reiterated threat to take decisive action and that have ‘confirmed at G7 we can take decisive action’. USD/JPY broadly flat on the day, sitting ½ pt off yesterday’s highs.
Asia Session
As USD/JPY quickly jumped by a figure on Thursday, we are hearing jawboning from Japanese FM "prepared to take decisive action on speculative FX moves". The FM also suggest the government won't rely on debt to fund food sales tax cut, an act trying to calm market sentiment. On the other hand, May headline inflation stays below 2% at 1.5% y/y. We all know it is driven lower by stimulus and base effect, but the slow consumption cannot be neglected. USD/JPY is trading 0.03% higher at 161.42 with JGB yields higher across the curve.
The week has barely ended yet and we are already having hiccups between U.S. and Iran. Iran has suspended the Geneva talks on Lebanon ceasefire complication. It is hurting the broader risk sentiment as market worries came true. This thorn by the side will likely drive risk asset lower in Friday as no one would like to hold the bag over the weekend. AUD/USD is trading 0.33% lower at 0.6991. NZD/USD is trading 0.53% lower while USD/CAD rises 0.15%. Both Brent and WTI are slightly higher for the session. Else, EUR/USD is down 0.35% and GBP/USD is down 0.31%.