Today, European stock markets opened with a big bearish gap as the sentiment in financial markets deteriorated further. FTSE and CAC are flirting with this year’s lows while the German DAX has reached the lowest levels in the last two years. The main reasons for this are the situation with the Italian budget and Brexit, among others. The Italians seem ready to negotiate and probably to change the budget in order to lower the deficit for next year as comments from different sources suggest, yet, it is not improving the market sentiment.

Safe haven assets are considerably higher today. USD/JPY is 80 pips lower from last night while EUR/CHF has declined more than 100 pips from top to bottom. Gold seemed to be forming a bearish pattern yesterday, but the sentiment has made Gold attractive again today and as a result, it has climbed around $15. But, the bearish reversing pattern in Gold is still valid until the week closes.

There were some interesting developments today as well, which made the GBP pop 60 pips higher in a matter of minutes. Minutes after the UK PM spokesperson said that the EU proposal on the backstop is unacceptable, Reuters posted a report where the EU apparently is willing to offer Theresa May a UK-wide customs union. I’m not sure what this means exactly but it seems like a lifeline for Theresa May more than for the UK, since May is in danger to be voted out this week. GBP/USD jumped higher, but the jump is faltering now as the markets want more evidence on this.

The European Session

Italian Look Willing to Negotiate – Early this morning, there was an article on Il Messaggero that Italians are ready to make adjustments to next year’s budget if the markets react negatively. These reiterate the comments made yesterday by Italian Prime Minister Giuseppe Conte. Later, the other Italian deputy Prime Minister Di Maio said that they got the message by the EU from the numerous comments from European officials, but he hopes that dialogue can continue. The market is not buying it though as stock markets continue to fall.                 

German PPI – The producer price index was expected to increase by 0.3% today, but it increased by 0.5%. Last month’s number was revised higher as well to 0.3% from 0.2%. Hopefully, this will help the consumer inflation later this year.

Khashoggi’s Murder Was Planned for Erdogan – Turkey’s President Recep Tayip Erdogan said in a conference that he has doubt about the sincerity of the Saudi King. He added that no one should expect this to be closed without answers and those who gave orders to murder must be taken into account. Erdogan keeps a similar position with the opposition media in Turkey, so his worries are merely an attempt to hurt the Saudis who are responsible for the murder. The international pressure is building up for the Saudis.

EU Backstop Proposal is Unacceptable for the UK – The spokesperson of the British PM Theresa May commented a while ago saying that the backstop proposal is unacceptable. But, as always, they are working on a deal and on the Irish border.

EU Throws Lifeline to Theresa May – Just minutes later, a piece was published on Reuters where the EU is said to be offering Theresa May a UK-wide customs union. Again, I’m not sure what this means but the GBP made a 60 pip jump on these comments.

The US Session

No Plan B for 2019 Budget for Conte – The Italian president is contradicting himself here with what he said yesterday, which doesn’t really help the Italian bonds. But he added that he sees 2.4% as ceiling for the deficit. Does that mean it might be lower? Perhaps. He also said that Italy won’t leave the Eurozone.

Philly Non-Manufacturing Business Activity – This index rose slightly to 37.6 points from 36.4 points previously. Although, wages and bonuses declined to 41.9 points, down from 48.1 points previously.

New tax Cuts in Progress in US – Donald Trump said yesterday that he plans another 10% tax cut for the middle class and today Larry Kudlow repeated it. But, it will come after the midterm elections. Meanwhile, the deficit is soaring in the US.

BOE’s Carney Speaks on AI – The Governor of the Bank of England is speaking about artificial intelligence and the world economy at the Annual Machine Learning and the Market for Intelligence Conference in Toronto. He might speak about cryptocurrencies, but just in case, you can follow our live coverage on our economic calendar guys.

Eurozone Consumer Confidence – The consumer confidence has been declining in the Eurozone and last month it fell to -3 points. The 0 level is the breakeven level where consumers feel neutral. Today, this index is expected to remain at -3 points again.

Trades in Sight

Bearish GBP/USD

1. The main trend is bearish
2. The retrace up is complete
3. The 100 SMA provided solid resistance
4. The jump is over

The 100 SMA capped the spike today

GBP/USD has been pretty bearish in the last two weeks. The downtrend has been pretty straightforward during this time and the retraces higher have provided some good selling opportunities. But, there was a quick jump earlier today after the EU offered another option for Theresa May for a UK-wide customs. But, the spike ended right at the 100 SMA which has turned into resistance now. The stochastic indicator is also overbought, so GBP/USD is turning down now.

In Conclusion

The EU offered something to Theresa May, a UK-wide customs and the GBP surged. May is about to get overthrown in the UK which would definitely leave Britain without a deal, which the EU doesn’t want either. But, we are not sure what it means or whether the UK will accept it. Follow us for more on this issue during the US session.