EURO Dropped, Asian shares Gained and USD Strenthen, after Italians Say "NO'' on Reforms
The EURO fell weak for a 20-month low in Asia on Monday as investors fled riskier asset after Matteo Renzi, Italian Prime Minister said he will resign after suffering a humiliating defeat in a constitutional reform referendum. The defeat was a blow to the European Union, which is already reeling under the pressure that led to the shock Brexit in June.
The EUR Slip
The EUR/USD opened at around 1.0685on Monday and slumped to 1.0505, the lowest since 2015, March, before recovering to 1.0539. The drop to the session low was the sharpest since June 2016 and opened the way to the resistance trough around 1.0457 in March 2015. The EUR/JPY slid more than 2.1% to 118.71, but later traded down at 119.73 and then added over 150 points before toping ahead of 120.30. The USD/JPY dropped as low as 114.90 before coming back strongly to completely recover its drop and add a few percentages for the session.
The Asian Shares
In Asia, China's Caixin Services PMI Gained to 53.2, well above the projected level of 52.7 in November and a 16-month-high and increased from 52.4 the previous month. In Australia, the business inventory jumped to 0.8%, above the 0.2% gains projected for the third quarter. Besides, the long awaited opening of the Shenzhen, Hong Kong Stock Connect on Monday went live, and the global repugnance weighed on Hong Kong’s and China’s main indices. For instance, the Hong Kong Seng index slipped 0.2% and China’s CSI 300 index tumbled by 1.8%. The link between the booking Shenzhen stock market of China and the neighbouring Hong Kong allow foreign investors for the first time to access some of the fastest growing technology companies in the second biggest economy in the world.
The U.S. Job Data
The USD index, which tracks the Greenback against the major global peers, jumped 0.7% to 101.49 after data released in November 2016 show that the United States economy adds more jobs than projected last month. The United States Labour Department said the economy added over 178,000 jobs in November, while the unemployment rate dropped from 4.9% to 4.6%. However, the economic report showed that average hourly earnings dropped by 0.1%, while the annual wage growth rate dropped from 2.8% to 2.5% in October. The report also stressed the case for raising the interest rate by the Federal Reserve at its upcoming 13-14 December meeting, but the fragile wage data covered the possible further rate hike in 2017.
The New Zealand dollar went down by 0.5% to $0.7091 after John Key, the Prime Minister, all of a sudden announced his resignation on Monday, saying it his right time to leave politics. This made New Zealand stocks to extend their losses on the CMC markets, trading 0.7% lower. In Europe, the investors said the Italian bonds are set to become under pressure as the German and the top-rated United States Treasury bonds gained. In fact, the Europe politicians and investors said that the “no” referendum victory in Italy could cause political instability in the unstable banking sector, which suffered a huge exposure to bad loans accumulated during many years of economic downtime. The resignation of Renzi represents a new blow to the European Union, which is trying to overcome many crises, and was not ready for Renzi to leave his reform push in the Euro-Zone, heavily indebted economy.
EURO Technical Analysis
Some analysts argued that, based on what happened at the height of the Greek crisis in 2012, the increased risk in the European Union crisis could see the EUR/USD trade as low as 0.8000. This may sound crazing to most people, but if a second Euro-Zone crisis were to come, with the USD at much stronger starting point, EUR/USD could still trade lower.
The European Central Bank is expected to meet on Thursday amid a lot of speculation that it will announce the extension of its asset buying program by six months and increase the type of bonds it will purchase. Besides, there is a speculation that the European Central Bank would step up and front baulks purchase of Italian bond in case the markets become unsettled by the “NO” referendum result. So, maybe it is the thought of the European Central Bank liquidity bond purchase driving things again in the CMC Markets.