Summary:

• Horst Seehofer and Angela Merkel reach a deal on migration so that Seehofer will keep his posts
• Oil prices bounce back due to a Libyan production stoppage
• RBA stays on hold, BoJ likely to slash its inflation forecasts later this month

This week has begun with a wave of uncertainties coming from Germany, but currently it looks that the internal political crisis has been resolved at least for the time being. During a meeting between Chancellor Angela Merkel and German Interior Minister Horst Seehofer a deal on migration was reached, and the CSU’s leader dropped his threat to quit from his posts. It means that Merkel is likely to keep its alliance together and therefore receding odds for elections this fall. German Interior Minister concluded his meeting with Merkel saying that they found a way to prevent illegal immigration on the border between Germany and Austria. The euro saw a quick jump on the headline, but it did not last too long and it is trading flat in the morning. On the flip side, do expect that German stocks could catch a bid when the market opens later today as internal political woes were among major constraints during the session on Monday.

The EURUSD jumped immediately when Merkel and Seehofer hammered out the agreement, but it’s been unable to extent this gain as of yet. However, from a technical point of view one may assume the pair will continue recovering toward 1.17 followed by 1.1740. Source: xStation5

Oil is another market being worth looking at this week. Yesterday oil prices got a blow in the wake of Trump’s comments with regard to a possible production increase in Saudi Arabia. Today it’s time to relief as the commodity prices are moving higher (WTI is rising much more impressively) on the back of an output stoppage in Libya. The country declared a force majeure clause on Tuesday on part of its supplies owing to a military crisis. Notice that this clause allows to suspend oil supplies without punishments for a supplier once a stoppage is due to reasons out of supplier’s control. As of 6:49 am BST Brent prices are going up 0.65% whilst WTI prices are moving up 1%.

WTI prices have already trimmed all its losses they made yesterday, and one may imagine they will continue climbing even toward $77. Source: xStation5

Looking at the macroeconomic calendar for today’s Asian session one may single out the Reserve Bank of Australia meeting which turned out to be a non-event, as expected though. The Bank left interest rates unchanged and more or less refrained from making any changes in its communique. It stressed that inflation is likely to stay low for some time, household consumption remains a source of uncertainty or that wage growth remains low, and it is likely to continue for a while. The Australian dollar did not move at all, and after more than an hour after the release it is trading even 0.2% higher against the US dollar. All in all, moves across major currencies are insignificant, but the NZ dollar is the worst one anyway. It is losing 0.1% as for 6:46 am BST following a bleak reading concerning business confidence for the second quarter. The NZIER survey showed business confidence reached its 7-year low. This in conjunction with the latest RBNZ approach suggesting the NZD could be trading still at elevated levels, and a hint at a possible rate cut as soon as next year poses a downside risk for the NZ dollar. Nevertheless, one needs to be aware that the kiwi has been battered of late, hence scope for a substantial slump might be contained alike.

The AUDNZD is approaching a crucial technical level, and if it manages to break it through, it could result in a move even toward 1.1120. Source: xStation5

The last news we would like to mention in our morning analysis concerns the Bank of Japan which will meet on 30/31 July. According to Reuters revelations (citing people with direct knowledge of the bank’s thinking) the bank is likely to slash its inflation projections again for this and the next fiscal year. The numbers suggest this fiscal year’s estimate could be cut to around 1% from 1.3%, and for next year to around 1.5% from 1.8% previously. Notice that the bank dropped earlier this year its pledge with regard to a specific time when the inflation objective will be met.