Friday, April 19, 2019

Better than expected US data fails to translate into a stronger Dollar

Tags
  • Dollar
  • Gold
  • Yen
  • Euro
  • Pound
  • Oil

MORNING BRIEFING

Fresh figures from Europe and the US were the driver behind yesterday's price action that infused the markets with some short-term volatility. The Euro and the Pound saw more losses on the back of the EZ PMI and UK retail sales reports but the Dollar remained unfazed despite the impressive beat in retail sales. Equities had a strong day, Gold consolidated below $1,275 and Oil was range-bound around the $64 mark.

Starting with the European figures, the PMIs disappointed investors for yet another time putting more pressure on the shared currency. The flash readings revealed that manufacturing in Germany and the broader Eurozone area remains in contractionary territory and worries about the growth prospects of the region forced the Euro to drop below 1.13. Prices retreated below the key 1.1250 mark and given the encouraging signs coming from the US economy, the Single currency may have more room to decline with the 1.1180 - 1.12 coming into focus.

Sterling on the other hand was expected to claw back some of its losses when the UK retail sales report printed stronger than expected. The report indicated that despite the uncertainty surrounding Brexit, British consumers didn't hold back on their spending during the past month. Retail Sales grew 1.1% compared to a -0.4% expected decline. Nevertheless, the Pound was not able to capitalize on this news and extended its slide to test the 1.2980 lows.

Now, whether this indicates a broader bearish bias given the ongoing Brexit saga or it's just some short-term weakness remains to be seen: Cable is about to test the key 1.2965 support, having also formed a descending triangle formation and a break lower points towards the 1.28 area. Otherwise, a bounce higher from that level will drive prices towards 1.31 in the near term.

The Dollar was also front and center ahead of the US retail sales report that was expected to print in a robust manner. The actual figures came in even stronger than expected with consumer spending during the previous month strengthening by 1.6% compared to the 1% prediction. However, the US currency also failed to capitalize on this news with 10-year yields resuming their retreat after hitting 2.6% earlier in the week.

So what does this mean for the currency and why didn't it gain? Clearly, market participants' reaction tells us that they remain hesitant to go on the offensive after a series of US data misses and that they will need more evidence to do away with the domestic slowdown worries. Dollar/Yen didn't break above 112 and given the lack of volume due to the Easter holiday, a consolidation or slight retreat looks likely.

Gold remained largely unchanged over the past 24 hours trading below the $1,275 mark as the Dollar's price action didn't prompt any volatility for the yellow metal. The broader bias remains bearish though and after the break below the $1,280 area, the $1,267 mark appears as the next support in sight. Oil is still trapped within its sideways trading range with prices oscillating around the $64 level. The break out of this pattern will show us what's next for Oil's direction so we will remain neutral in the short term.

MARKET EVENTS TO WATCH

  • US Housing Starts - 4.30pm
  • US Building Permits - 4.30pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Research