Tuesday, July 31, 2018

Dollar drops allowing the Euro to trend higher while the BoJ keeps policy unchanged

Tags
  • Dollar
  • Yen
  • Euro
  • Stocks

MORNING BRIEFING

The Dollar drops overnight ahead of the US inflation data due to be released later today while the Bank of Japan's monetary policy decision also attracts investors' attention. The European majors remain on a bullish bias as the US currency retreated during the first 24 hours of trading allowing the Euro to push higher again. Equities traded in the red yesterday and this morning the futures are pointing towards another mixed session.

Starting our review with the Euro, the shared currency is pushing above 1.17 amid the weakness seen in the Dollar. This weakness is primarily driven by the drop in the US Treasury yields that declined overnight even though the days ahead hold- a number of key events for the greenback. Today though, the European and US inflation readings will dictate the price action in the Euro; with expectations set for a healthy reading in the Eurozone data and a somewhat softer printing of the US PCE data the Single currency has the chance to continue trending higher towards the 1.1740 highs.

Taking a look at the Dollar/Yen, the Bank of Japan's decision to keep their 10-year yield target unchanged but allow more flexibility in bond operations is resulting in a bullish bias for the currency pair. The initial spike tested the 111.50 levels but quickly pulled back so they key question is whether this move higher will continue. Should the Dollar find fresh momentum, we should see prices comfortably overcome this resistance and trend towards the 112 area. On the opposite case, more sideways trading between 110.60 and 111.30 should be expected.

Commodities are on diverging paths with Gold unable to capitalize on Dollar's weakness while Oil prices are again on the rise. Starting with the yellow metal, the consolidation range continues to narrow suggesting that a breakout will occur soon. The key levels we're watching are the $1,218 lows and the $1,227 highs and break above or below these will indicate the next direction. On Oil, prices moved higher again to reaffirm the upwards bias seen over the past few days; with Oil trading above the $70 barrier this morning a continuation to the upside exposes the $78 area.

Equities were mostly in the red yesterday across the globe and this morning the Asian markets are struggling to stay above water. The heavy central bank schedule over the course of the week keeps investors on the sidelines and affects the European and US futures which are pointing towards a mixed opening. From a technical perspective, the Dow Jones has to remain above the 25,200 points' area for the uptrend to remain alive so we should focus our attention on this key support level for the day ahead.

MARKET EVENTS TO WATCH

  • Euro-Zone Consumer Price Index - 1pm
  • US PCE Core inflation - 4.30pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Market Research

 
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