More gains for the Dollar, more losses for the European majors. This seems to be the theme in the markets this week and however monotonous it may sound it has been pretty profitable for Dollar bulls. Hawkish comments from Fed officials and a better than expected Consumer Confidence report helped the greenback extend its rally yesterday. The Euro and the Pound broke to new lows, accompanied by Gold that dropped further to trade around $1,212. Equities were mixed with Europe in the red and the US posting marginal gains, Oil staged a relief rally to $52.
The greenback remains at the top of our watch-list as a combination of hawkish factors is pushing the US currency to fresh highs day after day. Apart from the losses in the Euro and the Pound, that were also prompted by the uncertainty in the European political scene, the Dollar gains further against the Yen and the commodity currencies. Fed Vice Chairman Richard Clarida sounded pretty bullish yesterday calling for more rate hikes until a neutral rate is reached and his boss, Fed Chairman Powell should strike a similar tone today when he speaks in New York later today.
At the same time, President Trump's unwillingness to go easy with China is pushing risk-off flows towards the US currency. The latest news suggests that the G-20 meeting will produce no concrete progress between the world's two strongest economies and investors go on the defensive on the Yen, the Australian and the Canadian dollars as a result. Dollar/Yen is already a breath away from 114 and a further extension may see prices hitting 114.50. The Aussie had recently come off its lows to trade as high as 0.73 but continued tariffs against China and a possible escalation of the levies next year may take prices towards 0.71 and 0.70 over the new few weeks; the Australian currency is closely correlated to raw materials' demand from China and the trade war with the US is taking a toll on Chinese productivity.
The Pound will also be in the spotlight today as the Bank of England will publish a report trying to assess the potential effects of Theresa May's Brexit plan on the British economy. The findings of the BoE report will be key in shaping the near-term outlook for the Pound as a bleak bottom line will spell more trouble for May in her attempt to convince the British MPs to approve her deal. Sterling is already under fresh pressure after comments from US President Trump who wasn't happy with the draft May has put forward so more losses towards 1.27 may be in the cards before the Pound corrects.
Gold succumbed to the rising Dollar and broke below the $1,220 support to trade all the way to $1,212 yesterday. The yellow metal is currently hovering around the $1,215 level this morning but, depending on fresh momentum from the Dollar's side, the risk lies to the downside with the $1,200 level being the area of interest in the short term. Oil is responding to upwards pressures and is trading above $52 this morning; as said yesterday, the fundamentals are there for Oil but investors need to see action from OPEC's side before they rejoin the fray and push prices higher.
Equities in Asia are trading with a bullish bias this morning taking their cue from the US markets that ended the day above water. Trading in London should open in positive territory as futures in Europe and the US are pointing higher this morning with investors looking for bargains in value stocks after the steep losses seen in recent weeks.
MARKET EVENTS TO WATCH
- BOE Financial Stability Report - 11am
- US Gross Domestic Product - 5.30pm
- Fed's Powell Speaks to Economic Club of New York - 9pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research