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The euro recovers ground after Italian coalition collapse.

By Jake Trask

Sterling reacted to external influences yesterday as there was little new Brexit news or domestic data to move the pound. It pushed higher against the euro as the single currency was dumped across the board on the collapse in Italian coalition talks, however dropped against the dollar as the greenback was one of the main beneficiaries from the European political drama. It’s another quiet day today with little UK data due so expect Brexit news, events from Italy and the second estimate of US Q1 GDP to be the main drivers for sterling crosses. GBP/USD is back above 1.3250 as some of the fear re: Italy abates however we are still in risk off mode with the Nikkei 225 Index in Japan closing 1.52% lower and the yen remaining well bid.

One of yesterday’s main beneficiaries from the sell-off in the euro was the dollar as traders closed long euro positions and shorted the single currency on the Italian political turmoil. EUR/USD tested crucial 1.15 support however found firm support at the big number and has since recouped some of its losses. To take our minds off events in Europe there are a couple of top-tier data releases from the States. We start with APD Non-Farm Employment Change figures which is expected to show 191k increase for May, which is broadly in line with the Non-Farm Payrolls figure due on Friday. Following the ADP number we have second estimate of US Q1 GDP with no change from the first readings annualised 2.3% expected. Any higher/lower print will likely move the markets as dovish FOMC minutes released last week reduced the chances of a June hike from the Fed from 90% to 75%. EUR/USD trades at 1.1590 after testing its lowest level since last July. USD/JPY trades around 108.75 after being as low as 108.20 yesterday morning.

All eyes remain on Italy with concerns remaining over the fractious political situation and what future elections could mean for the Eurozone’s 3rd largest economy. There has been a slight recovery in Italian bonds, the Milan stock exchange and the euro this morning as some of the panic lifts from financial markets. The main European bourses are slightly in the green as we start the day too however a lot of confidence the single currency had attracted from investors over the past year has no doubt evaporated since the weekend. Data-wise we have had positive German Retail Sales and a higher than expected Spanish CPI print to add some support to the single currency. Later today we have German CPI numbers which is predicted to show a healthy 0.3% monthly uptick. GBP/EUR is heading lower and currently sits around 1.1445.

Commodity currencies were hit by risk off trade at the start of the week however a recovery (of sorts) seems to be underway as we start the day. AUD/USD had dipped below 75 cents however is now back up to .7525. Tonight’s private Capital Expenditure q/q release will draw the eyes Aussie holders with the figure expected to turn positive again after last month’s dip to -0.2%. GBP/AUD is at 1.7630.

USD/CAD appears to have got a hold above 1.30 over the past 24 hours as the dollar rallied and the loonie fell away on events in Rome. It's currently hovering just above the big number with today's aforementioned US data and this afternoons Bank of Canada interest rate statement meaning it will likely move north or south by the end of the European trading day. No change is expected in policy from the BOC however the tone of the statement to future rate moves will be key. GBP/CAD sits at 1.7265.

New Zealand released its six-monthly Financial Stability Report overnight which endorsed NZ’s solid financial system however flagged high household and dairy sector debt as well as rising international rates as areas of concern. The Kiwi liked the Aussie slipped at the start of the week however it seems to be on the rise again currently sitting at .6930 against the dollar and GBP/NZD at 1.9145.