It was a relatively calm session overnight with investors soothing their wounds from the sharp reversal of the EUR following the results of the Italian Referendum. As the NO vote was largely expected, and the implications of Italy not being governed 100% until a new PM is appointed are not as dramatic as feared, EUR as well as stocks recovered their initial losses and traded higher on the day. With this risk event now out of the way, focus will shift on this week’s ECB announcement to set the tone.  Currently markets are anticipating a six-month extension to the 80 billion a month program. But growing political uncertainty in the region might prompt ECB to act more than expected. 

Currencies: The EUR/USD touched 20 month lows after the Italian Referendum (1.0505) but managed to rebound sharply and reach highs of 1.0795 overnight. The fact that the Italian vote was largely priced in, together with the Dollar’s aggressive rally following the Trump elections seemed to have been the reason for the inability of the USD to post new highs. The Dollar rally is now under threat, as it has been every time EUR/USD approaches 1.05 (4 times in the last years). This time however, we still have political risk events in the horizon, with elections coming in the Netherlands, France and Germany next year.  Elsewhere, Australian dollar remains steady in range after RBA left the cash rate unchanged at 1.50% as widely expected.

Stocks: Global stock sentiment roared following the initial selloff post the referendum results as investors were relieved over the lack of any immediate sign that Italy would head toward an early election after the PM’s resignation. Dow Jones set a fresh record high following a good US data report that showed further strong job gain last month. The positive sentiment was transferred to Asia, with regional stocks posting their biggest rise in 2 weeks.

Oil and Gold: Oil fell, with US crude down more than 1% at $51.26 per barrel as investors judged that a 16% rally since the OPEC agreement last Wednesday to curb production was running out of steam. Brent crude also stumbled. Gold tumbled to $1157 lows, its lowest since February, before bouncing at $1170.