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Euro to Weaken Following ECB’s Rates Decision? The European Central Bank (ECB) has decided to hold interest rates steady, with market participants predicting further euro weakness. At today’s meeting, the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40%, respectively. The Governing Council says that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time.
Report Targets Citi’s Role in Sterling Flash Crash A report in the Financial Times claims a Citi trader in Tokyo exacerbated the sterling flash crash on October 7. The FT report, citing bankers and officials involved in the inquiry, says the investigation into events on that day are focusing “heavily” on the actions of the Tokyo-based Citi trader who allegedly placed multiple sell orders via the bank’s aggregator and “panicked”. Sources familiar with the matter tell Profit & Loss that while Citi’s name was prominent in the market on that day it was by no means alone.
Italian Referendum Could Spell Trouble for the Euro Yesterday’s referendum decision in Italy to reject changes to the Italian constitution, and the subsequent offer to resign on the part of Italian Prime Minister, Matteo Renzi, could spell trouble for the future of the euro, warn economic strategists. Profit & Loss reported yesterday that the euro was under pressure following the referendum decision, but on Monday it recovered. Despite this, Jason Leinwand, co-founder and CEO of FirstLine FX, thinks that the currency is overvalued given the potential political threats in Europe.
Trump’s Tweets Continue Currency Manipulation Speculation Comments made Sunday by US president-elect Donald Trump on Twitter have sparked fresh speculation as to whether his administration will label China a currency manipulator once he is in office. China lodged a formal complaint to the US government after it emerged that Trump held a phone call with the President of Taiwan on Friday, in breach of decades of diplomatic protocol. “I can tell you that the Chinese side has lodged solemn representations with the relevant party on the US side both in Beijing and Washington. China has got its message across to the world as a whole with regard to Taiwan-related issues. The US side, president-elect Trump's team included, is also fully aware of China's solemn attitude on the issue,” said the Chinese Foreign Ministry spokesperson, Lu Kang, in a press conference today.
Euro Slides as Italy Rejects Constitutional Change The euro came under pressure in early Asian trading Monday as first exit polls and then results indicated a strong majority rejecting the proposed changes to the Italian constitution. The referendum was widely seen as a vote on the Italian government and Prime Minister Matteo Renzi quickly followed through on his promise by saying he would offer his resignation to the Italian president Sergio Mattarella. Early indications have the ‘No’ camp winning in the region of 60% of the vote. EUR/USD fell steadily rather than spectacularly in early Asian trading, having opened at 1.0670. It ground lower to touch 1.0508 as Renzi announced his resignation, but then bounced to 1.0550.
Liquidity Conditions “Here to Stay” – Survey A new survey of hedge funds finds that almost half of respondents believe that decreased market liquidity “is a secular shift that is here to stay”. The study was conducted by State Street in partnership with the Alternative Investment Management Association (AIMA). It finds that regulations stemming from the 2008 financial crisis, coupled with historically low interest rates and slow rates of growth in the global economy, have constrained the ability of many banks to perform their traditional roles as market makers, which in turn has impacted broader market liquidity conditions.
US Elections: After the Panic “Following the US election, global markets have reacted in predictable panic. Equity markets [and] the dollar sold off and gold rallied,” notes Kerim Derhalli, CEO of invstr. Profit & Loss previously reported on the immediate aftermath of the surprise US election victory for Donald Trump, but the question facing markets now is: what next? “Key will be now whether or not Trump will prove to be a populist or a pragmatic president,” says Valentijn Nieuwenhuijzen, chief strategist and head of multi-asset at NN Investment Partners.
Dollar Lower as Trump Wins US Election In a result that was not seen by pollsters or markets, Donald Trump has, according to US networks, won the US presidential election. As results came in through the night and the swing to Trump became apparent, equity index futures were crushed, Japan’s Nikkei Index at one stage being 1000 points down, and the US dollar was hit hard as part of a “risk off” trade. USD/MXN, the bellwether pair for the election, dropped to 18.1650 in trading soon after polls closed as exit polls predicted a Clinton victory, however as Trump crept up in the polls the pair jumped higher, ultimately hitting a high 20.77 – a fall for the peso of 14.3%. The fall in the peso prompted Mexican authorities to call an emergency meeting to discuss their response to the financial fall out from the election.
Volumes High, Spreads Holding Up as US Election Uncertainty Grows Sources are reporting “very high” volumes in FX markets as uncertainty over the outcome of the US election increases. With some polls still open in the US the financial markets have swung 180 degrees from expectations of a Hilary Clinton victory towards “too close to call” and in some cases a Donald Trump win. The growing shock of the pollsters once again getting it wrong has seen USD/MXN – the benchmark for the election as far as FX markets are concerned, sky-rocketing almost 12% from 18.30 to 20.48. The impact has been felt elsewhere with USD/JPY dropping sharply from above 105.50 to 101.50 and EUR/USD rising from 1.10 to 1.1231.
Random FX Volatility Characterises Early Returns in US Election As polls in eastern states closed the FX market has seen some whippy price action, however according to dealers spreads remain reasonable. USD/MXN, widely seen as the bellwether of the election outcome, has whipped around, from 18.30 when polls closed it has hit a high of 18.44 and a low of 18.1650 and was, ironically, last trading at 18.30. “The market is keying on Florida,” an Asian-based trader tells Profit & Loss. “It looks tight but you can track the updates by the moves in USD/MXN.”