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By xemarketanalysis October 9, 2018 12:00 pm
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    XE Market Analysis: Italian Woes Drive Euro to Seven Week Lows

    OVERVIEW

    • The DXY Index remains near a six-week high as US Treasury Yields jump to 7-year high 
    • The PKR sheds 7% as the country seeks bailout from the IMF
    • WTI holds near $74.30 a barrel as gold slides lower to $1,180 an ounce

    HIGHLIGHT

    The Pakistani Rupee is making headlines today after plunging nearly 7% against the Greenback today. Pakistan's government allegedly approached the IMF for a bailout. The country is mired in high fiscal and current account deficits and low international reserves. The PKR remains the worst performer among MENA currencies and we expect the currency to remain under pressure with investor sentiment remaining weak.

    US DOLLAR

    The US Dollar is trading higher against its G-10 peers with the DXY Index hovering close to a six-week high. We have a thin data calendar today and most of the recent moves can be attributed to US 10-year yield which is at a 7-year high. The Euro is down 0.3% with the EU clashing with Italy over its budget deficit. The IMF reduced its global growth forecast from 3.9% to 3.7% due to trade tensions and turmoil in emerging markets. Investors remain cautious ahead of key developments on Brexit and the ongoing US-China trade spat.

    BRITISH POUND

    Brexit continues to dictate the direction and outcome for the Sterling. GBP/USD is down 0.3%, sliding towards the mid-point of 1.30. The IMF lowered its growth forecast for the UK due to uncertainty over the UK’s exit. The negotiations move into crucial period with both parties hoping for a breakthrough before the EU Summit on October 17th. The currency remains at the mercy of headline risks.

    EURO

    The Euro continues to slide lower touching a seven-week low against the greenback. A hawkish US Fed, resurgent US Dollar demand and disagreements between the EU and Italy are all contributing factors for a bearish outlook on the common currency. The European Commission is expected to assess Italy’s draft budgetary plan after October 15. EUR/USD could revisit the lows we saw in mid-August.

     

    CANADIAN DOLLAR

    USD-CAD is hovering near a seven-week high with the US Dollar attracting broad-based global demand and with US yields reaching above 3.25%. The Canadian Housing Starts came lower than expected this morning. Data from CMHC showed the trend stood at a 19-month low in September, following declines in four of the last five months. We expect the pair to trade around the 1.3 handle. 

    AUSTRALIAN DOLLAR

    The Australian Dollar is recovering after falling to a 32-month low against the US Dollar. The AUD, a proxy for EM currencies, has been sold off with rising US interest rates. The differential is set to widen further as the Fed sees further hikes in the near term. NAB business conditions survey results was at 15 versus 9 forecasted and confidence improving to 6 from 5. These activities may provide a temporary respite for the AUD .

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