Tuesday, October 30, 2018

Better than expected data helps the Dollar trade higher, the Euro is front and center today

Tags
  • Dollar
  • Gold
  • Yen
  • Euro
  • Pound
  • Stocks

MORNING BRIEFING

The US Dollar starts the week on the front foot on the back of better than expected US data and an attempt for a recovery in stocks. The Euro and the Pound consolidated near their recent lows signaling a temporary lack of direction but Dollar/Yen pulled higher as the risk-off bias receded. Gold retreated responding to the improvement in risk sentiment with any safe haven demand being limited at this time while Oil tread water around the $67 level.

The greenback was the winner of the day yesterday posting strong gains across the board. While the equity markets are trying to recover, the US currency is also receiving fresh demand on the back of positive domestic data: the US GDP figures last Friday came in better than expected while yesterday the month-on-month PCE report also printed stronger. This series of upbeat data is helping investors re-solidify their faith on the US currency after a report that indicated that the odds of the Fed continuing on the same tightening path are now lower. Having said that, Friday's NFP report will be the key event of the week and up until then the Dollar is expected to trade with a positive bias.

The European majors came off their lows at the end of last week but yesterday the price action was limited. Starting with the Euro, the shared currency barely reacted to the news that German Chancellor Angela Merkel will step down at the end of her term. Today the focus will be on the release of the German inflation and employment data along with the Eurozone GDP figures: expectations are set for a round of mixed numbers so we may see further weakness in the Euro today looking to retest its recent lows.

The Pound remains on a similarly bearish trajectory and with limited news on the Brexit agenda and no fresh reports on the docket the price action will depend on how the Dollar trades today. From a technical perspective, the decline we've seen over the past few days has been losing momentum but with nothing positive coming from the UK traders are struggling for reasons to buy the Pound, even in the short-term. However, the BoE rate decision on Thursday may provide some volatility to the UK currency; clearly there will be no changes in policy but Governor Carney's remarks always take a toll on the Pound.

Gold lost momentum yesterday after the previous risk off bias receded for the time being. The yellow metal dropped as low as the $1,225 level and this is now a key short-term support: a bounce from here will allow Gold to travel towards the $1,230 and $1,240 levels once again; otherwise, a deeper correction will push prices towards the $1,215 support. Oil remains in a consolidation pattern after having dropped more than $10 since the beginning of the month. This sideways trading action suggests that Oil is now looking for a new direction and the technical outlook of the instrument may point towards a recovery higher but for that to happen we will need to see a move above the $68.50 level first.

Equities are trading higher in Asia this morning while the European markets are set to open with a positive bias. Yesterday, the US markets ended the day in the red for yet another day but the European bourses indicated a positive tilt with investors looking for bargains after a series of bearish sessions. Better than expected US data is helping alleviate investors' concerns and the futures on either side of the Atlantic are pointing higher at this time.

MARKET EVENTS TO WATCH

  • German Unemployment Change - 12.55pm
  • Euro-Zone Gross Domestic Product - 2pm
  • German Consumer Price Index - 5pm
  • US Consumer Confidence Index - 6pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Research

 
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