FX Morning Colour: Eur suffers from Fed and Italian budget fall-out

EUR

Not the biggest G10 lose in the FOMC aftermath vs a broadly firm USD (DXY back above 94.500 and up to 94.645 at best), but struggling to maintain 1.1700+ status amidst more Italian fiscal bickering in Rome between Economy Minister Tria and the more anti-austerity factions of the coalition Government. The single currency has derived some underlying support from firmer than expected German state CPI reports implying an upside skew to the national print, while hefty option expiry interest at 1.1700-05 (1.35 bn) may also be keeping the headline pair afloat.

GBP/AUD/CHF/CAD/NZD

The major underperformers against the Greenback, partly on Fed policy guidance reaffirming a final and 4th 25 bp hike this year, followed by 3 more in 2019 and another the year after, but also on other factors. Cable is teetering above 1.3100 as Brexit uncertainty persists, while Aud/Usd is slipping from the 0.7250 level that has been pivotal amidst the ongoing US-China trade rift. The Franc is only just holding circa 0.9700 and around 1.1350 vs the Eur, conscious that the SNB will be watching out for any Roman repercussions and ready to intervene if the Chf strengthens excessively on safe-haven grounds. Elsewhere, the Loonie has lost much of its crude traction following latest NAFTA news that suggests little prospect of a deal anytime soon, with Usd/Cad up over 1.3050 ahead of Canadian average weekly earnings data and a speech from BoC’s Poloz later tonight, while the Kiwi only got a fleeting boost from a relatively upbeat RNBZ assessment of the economy and core inflation as the OCR outlook remained neutral. Hence, Nzd/Usd has reverted to its 0.6650 axis and veering south.  

JPY

Holding up much better than the rest in contrast to recent sessions, even though BoJ Governor Kuroda has maintained a dovish stance with powerful easing still appropriate, and it appears that technical impulses may be impacting after the latest rejection of 113.00+ levels. The headline pair retreated towards 112.50 before finding some underlying bids ahead of a 112.35 Fib and a decent expiry between 112.50-40 (1.1 bn), while Eur/Jpy topped out in advance of 133.00 and a quadruple top just above the big figure.

(RANsquawk)