Brexit saga drags on, but Italy to push Eurozone into the spotlight today

Today's news headlines:

  • ‘May revives Irish border plan to appease Eurosceptics’. The approach may be popular, but doubts prevail that a technology-based approach is workable. (Financial Times)
  • ‘Even Italy's most loyal bond buyers are getting cold feet now’. European Commission report today could pave the way for fines over budget breach. (Bloomberg)
  • ‘Housing starts rebound in October but single-family drought lingers’. Life in US real estate development figures, but focus is on apartments, not single occupancy homes. (MarketWatch)

Theresa May has survived another day of leadership in the Conservative Party and kept her title of Prime Minister intact. This story will continue to play a significant role in market sentiment, although the next opportunity for fresh progress may have to wait until the weekend when EU leaders meet to discuss the Brexit divorce proposals, and potentially attempt to add further demands to the deal. However, the European project seems set to find itself in the spotlight today for a rather different reason. The European Commission meets to publish its opinions on the draft budgets submitted by all 19 member states, who currently use the Euro—the expectation is that the focus will fall on Italy. The continuing stand-off over Rome’s austerity-busting budget proposals which would drive debt higher is expected to be called out, starting the process for fines to be levied against the Italian State. Concern over this situation has already been capping gains for the Euro, so any formalisation of action here may increase downside pressure on the currency.

After Tuesday’s disappointing National Association of Home Builders (NAHB) numbers from the US, there was some recovery in the housing market yesterday. Although, there’s a definite bias towards new construction being centred around multi-occupancy dwellings (i.e. apartments). Again, this can be interpreted as being reflective of a slowing economy and adds weight to those assessments circulating which suggest that the US economy will see growth rates fall dramatically into 2019.

A number of lower level US economic data releases are being published earlier than planned today, in light of the Thanksgiving break. These could increase volatility in Dollar trading in the near term, although given recent gains for the US Dollar, the bias could well serve to pare back exposure to the currency.  

US Durable Goods Order data for October is amongst the highest profile economic releases for the day ahead due to be published at 1.30pm GMT. Markets are eyeing a notable slowdown here, with a decline of 2.5% being eyed. Anything below this level could potentially unsettle the DXY Dollar index, which has been posting some modest gains from the two-week lows it struck earlier in the week.   

GBP/USD

After declining to fresh lows for the week last night, the Pound has posted some modest gains in early trade. Theresa May’s continued survival as leader of the Conservative Party is something which Sterling will applaud, but the question has to be how sustainable this is.

EUR/USD

The Euro is posting early gains over the US Dollar, supported by a general theme of growing appetite for risk, although any backlash from the European Commission today towards Italy could readily unsettle gains.

GBP/EUR

The Pound has been stuck in a very tight range against the Euro for the last 24 hours as markets await some fresh direction. Both Brexit and the Italian budget stand-off hang over GBP/EUR trades right now, and both lines have the ability to manifest themselves into broader bouts of volatility for the respective currencies.