ForexLive European FX news wrap: Dollar off the highs but risk stays on the defensive

Headlines:

• Dollar well in charge in wild start to the new week
• ECB’s Villeroy: Trump tariffs is a very worrying development
• ECB’s Kažimír: Latest rate cut moves us closer to our destination
• ECB’s Šimkus backs another 25 bps rate cut in March
• Italy January preliminary CPI +1.5% vs +1.3% y/y prior
• Eurozone January preliminary CPI +2.5% vs +2.4% y/y expected
• Eurozone January final manufacturing PMI 46.6 vs 46.1 prelim
• UK January final manufacturing PMI 48.3 vs 48.2 prelim
• Switzerland January manufacturing PMI 47.5 vs 48.4 prior

Markets:

• JPY leads, NZD lags on the day
• European equities lower; S&P 500 futures down 1.5%
• US 10-year yields down 6.3 bps to 4.504%
• Gold up 0.1% to $2,803.31
• WTI crude up 0.9% to $74.40
• Bitcoin down 2.2% to $95,530

It’s all about Trump and his opening salvo in starting a trade war, with tariffs against Canada and Mexico set to kick into effect tomorrow. There’s still a small window of time for an accord to be struck but at this point, we seem to be headed for at least a taste of his tariffs arsenal.

As it is night time in the US, the madness has calmed down slightly in Europe. But I reckon it’ll only be until the next Trump headline hits and markets will feel the angst once again.

In any case, risk trades remain on the defensive but at least the market rout did not get much worse during the session.

The dollar opened with a gap higher across the board and peaked in Asia trading before seeing gains ease in Europe. USD/CAD was up to a high of 1.4792 earlier in the day but is now only up 0.9% to 1.4655 as it eats into the opening gap higher.

EUR/USD is also marked down by just 0.8% to 1.0275, up from its earlier low of 1.0210. And GBP/USD down just 0.4% to 1.2345 and well off its earlier low of 1.2249. At the same time, USD/JPY is now lower as it follows bond yields lower during the session. The pair is down 0.6% to 154.30 with 10-year Treasury yields back down to test the 4.50% mark.

In other markets, stocks are being hammered with European indices also seen down nearly 2% across the board. That’s not as bad as the opening losses but again, it may prove to be just a bit of a breather before emotions run high again later.

US futures are also pointing lower with S&P 500 futures down 1.5% and Nasdaq futures down 1.9% currently.

In the commodities space, gold is near unchanged levels and off earlier lows as it nudges back to the $2,800 mark. Meanwhile, oil prices opened with a gap higher as Trump looks to put oil and gas tariffs in his crosshairs next for 18 February.

The crypto market is also an interesting one with the likes of Ethereum imploding. There’s been a good bounce off support around $2,200 – where the August and September lows last year held – and price is back up to $2,618 but still down over 9% on the day. As for Bitcoin, it is also down a little over 2% to $95,000 levels but at least off its earlier low of $91,178 with the 100-day moving average also in play at $93,895. Bitcoin has not broken below either of its key daily moving averages since October, so it will be a key level to watch out for.

This article was written by Justin Low at www.forexlive.com.