"Austria FinMin Loeger: Italy Is Taking EU Hostage, Breaching Budget Rules Would Open Door To Other Countries To Do The Same $EURUSD"

Source: https://twitter.com/LiveSquawk
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Italian yields fall sharply to support euro and risk

Market Overview

It seems as though major markets are on something of a knife-edge at the moment. There are a plethora of reasons that should illicit fear and caution, with tensions over relations with Saudi Arabia (and how this could impact on the oil price), the US/China trade dispute, the Italian budget and the impasse for Brexit negotiations to name but a few. This is leading to a move towards renewed dollar strength. Treasury yields continue to tip toe higher, and this is allowing the dollar to nudge ahead on performance, whilst equity traders remain on edge. However, if any one of these geopolitical tipping points is reached then, things could quickly turn sour again. Yields would fall, the yen would be a strong performer once more, and gold would make a renewed break higher. In all of this, the biggest move would likely be saved for a fall on equity markets, with an outlook now that seems to be far more nervous than we have seen for at least six months (at least on the VIX). However, this morning, there is mood of positive risk with some good news to focus on (for a change). On a quiet day of data, the immediate focus is on the Italian budget this morning and news that credit ratings agency Moodys has decided its outlook on Italy is “stable” from negative watch. Italian yields have fallen over 20 basis points and with the Italian government ready to discuss its budget with the EU, there is a rare air of positivity now, helping the euro perform better today. With Chinese equities sharply higher this morning, there is an early positive start to the week, but can it last this time?

Wall Street closed nervously on Friday (S&P 500 -1 tick at 2768 whilst futures are marginally higher. Asian equities were much stronger overnight, with China Shanghai Composite leading the way 3.8% higher. European markets are marginally positive today with Eurozone markets likely to outperform on the improved Italy debt story. In forex, the euro is gaining ground whilst the yen is the main underperformer. For commodities, gold is around flat, whilst oil is also supported.

There are no key economic releases due on the calendar today.

Chart of the Day – AUD/JPY


Aussie/Yen remains a very good indicator of risk appetite and with markets seemingly in the balance again, this could be an interesting market to use as a gauge again. It would appear that the old pivot at 80.50 is one more a barrier to the recovery. However, what could be seen as an encouraging sign is that momentum is showing signs of improving again. The RSI pulled to a two and a half week high on Friday and suggests a potential upside break above 80.50. The MACD lines are also bottoming out too. It is though important to say that a recovery is forming and there is still an ongoing medium term bear bias to the market (ever since the breakdown below 80.50). This is reflected in the fact that the moving averages are all in bearish decline still, so any recovery would be counter-trend. However, the hourly chart shows that above 80.60 would complete a small base pattern and imply around 150 pips of recovery towards 82.00, but give this would be a bear market rally, the weight of overhead supply (next resistance at 81.30) and trading against the trend may restrict any recovery momentum. There is a minor higher low at 79.50 as support now.

Read more: https://www.hantecfx.com/italian-yields ... -and-risk/