After a number of sessions that saw investors focused on the European majors, with Italian politics and Brexit talks monopolizing attention, it's now time to turn our gaze to the Dollar. Looking ahead, the release of the Non-Farm Payrolls report from the US and President Trump's intention to slap China with a further $200 billion of tariffs will dictate the direction for the greenback. Stocks remain under pressure with emerging markets' troubles and the threat of a full-blown trade war keeping equity traders on the defensive; European and US futures trend higher but this might not last long.
Starting with the Dollar, the US currency has been trading mostly sideways for the past 24 hours as investors await today's data to provide fresh stimulus. Yesterday the ADP employment data, a good precursor for the NFPs, missed its mark preventing the Dollar from building up momentum but the non-manufacturing ISM reading came in stronger than expected offsetting any negative bias. In any case, economists are expecting a positive employment reading today which will solidify the case for the Fed raising rates again this month and will push the Dollar higher.
The US currency has seen losses during the past few days against the Euro and the Pound on the back of the positive news and rumors regarding Italian politics and progress in the Brexit talks. At the same time, the Japanese Yen also rallied yesterday when President Trump hinted that he might look to take on Japan next and its trade relations with the US; the “flight to safety” rally that followed drove Dollar/Yen to 110.50. Having said that though, a positive NFP reading today may reverse these losses and the key figure would be around 190k jobs added and wage growth hitting 0.3% this time around.
If we see the NFPs printing in a positive manner then the Euro will quickly retreat below 1.16 and look to test the 1.1550 lows. The Pound trades around 1.2950 this morning and a robust NFP report will put the UK currency under pressure; a break below the 1.29 figure will open the door for a move towards 1.28. The Yen enjoyed a handsome rally yesterday but depending on how the NFPs print we may see prices reversing course and hitting 111 and 111.50 in extension.
Commodities extended their recent moves with Gold climbing to $1,205 before settling around the $1,200 mark while Oil dropped to $67 before pulling back $1 higher to end the day in the red. For the yellow metal, the price action revolves around Dollar's direction so today we may see a reversal lower again if the NFPs print strong with the $1,190 area coming into focus. Oil remains under pressure as fresh data indicated that US reserves grew last month and prices are now testing an important interim support; a bounce from here will drive Oil to $70 again while a deeper correction points towards the $64 area.
Equities ended the day in negative territory yesterday with investors worried that fresh US tariffs on China will take a significant toll on global growth. A further escalation in this trade spat could slow down global growth by as much as 0.4% according to Fitch while UBS warned that the S&P 500 would drop 5% if the US imposed fresh levies on Chinese goods. This morning the European and US futures are pointing a bit higher but the global indices will likely reverse lower as soon as Trump pulls the trigger on these new measures as investors will be looking for cover.
MARKET EVENTS TO WATCH
- US Non-Farm Payrolls - 4.30pm
- US Average Hourly Earnings - 4.30pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Market Research