- Conte made his first comments as Italian PM on Tuesday.
- Ears to the ground on Brexit headlines.
- UK dada beats improve GDP Q2 outlook, but enough to convince the BoE yet.
EUR/GBP has stabilised within the 0.8720’s where GBP was the strongest coming into NY on the back of better than expected service PMI. EUR/GBP was down to 0.8743 right off the bat on the UK data beat vs the high of 0.8785 in early Europe.
The Service PMI beat follows the UK manufacturing and construction PMI beats and IHS Markit says that these PMIs are pointing to UK GDP growing at 0.3-0.4% in Q2, (BoE kept rates unchanged in May after meagre GDP growth of 0.1% in Q1). However, there will need to be more convincing before the BoE shifts towards a hawkish tone again anytime soon. Cable was unable to sustain through 1.3392 the high, falling back to 1.3334 before climbing back to 1.3373, recovery high. Indeed, traders are watchful for Brexit headlines that is keeping the bulls at bay.
Key data
- Eurozone April retail sales +0.1% vs +0.5% m/m expected
- UK May services PMI 54.0 vs 53.0 expected
- Eurozone May final services PMI 53.8 vs 53.9 prelim
- Germany May final services PMI 52.1 vs 52.1 prelim
- France May final services PMI 54.3 vs 54.3 prelim
- Italy May services PMI 53.1 vs 53.0 expected
- Spain May services PMI 56.4 vs 56.0 expected
- France YTD April budget balance -€54.3 bn vs -€33.1 bn prior
In other news, Conte made his first comments as Italian PM on Tuesday which weighed on the euro and Italian stocks and bonds. The new PM outlined a program of deficit spending that will challenge EU budget rules. Traders are nervous that any elaborate spending proposals could increase tensions internally and within the EU. However, Conte said he was confident in the country’s power to negotiate with Brussels. Meanwhile, the sense of angst sent the euro down 0.24 per cent on the day, making it one of the worst performers among the G10 group. Italian 10-year yields were up 23 basis points to 2.77%.
Closing changes for the main bourses:
Italy MIB -0.8%
UK FTSE 100 -0.6%
French CAC +0.1%
German DAX +0.2%
Spain Ibex -0.3%
EUR/GBP levels
EUR/GBP remains between a wide range around the moving averages, with the bid capped by the 100-D SMA, struggling to break up out of the descending channel. On the upside, 0.8780 protects space to 0.8820 that guards the 200-D SMA at 0.8851. However, to the downside, 0.8700 and the double bottom lows are exposed at 0.8697, guarding the downside support of the descending channel. 0.8620 protects a run towards 0.8526 as being the 78.6% retracement of the move from 2017 on the wide.
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