The Dollar remains subdued at the beginning of the week even though the US Retail Sales printed in line with expectations and the 10-year Treasury yields rallied higher. The US currency failed to gain against its rivals during the first 24 hours of trading and the question becomes whether this weakness is just a sign of hesitation on behalf of markets participants or whether they expect something on the bearish side from Jerome Powell today. Equities are mixed this morning with traders focusing on the earnings season that didn't kick off well in the US.
The major risk event for the greenback over the next 48 hours will be Fed Chairman Powell's testimony to Congress. The head of the Fed is due to appear in front of the Senate today and the focus will be on his remarks regarding domestic growth and interest rates' policy in the face of escalating trade war developments. We know that Powell holds a hawkish view over the economy but the question is whether his outlook will be swayed by the prospect of a worsening relationship between the US and its trade partners.
Depending on his tone and given the lack of any other Dollar-related news on the calendar the greenback will either proceed higher in an attempt to correct its recent losses or continue moving to the downside. Dollar/Yen is trading sideways in anticipation of the key event between the 112.20 and 112.80 levels; a break lower will drive prices towards the 111.50 area while the upside target lies around the 113.50 mark.
Earlier in the morning though, traders' attention will be on the Pound in light of the release of the UK employment data. Yesterday, the British currency dropped unexpectedly when Theresa May was nearly defeated on a customs bill vote that was passed by a slim margin of 3 votes. Rumors that another cabinet member resigned further dampen Sterling's short-term outlook but today it will be all about the labor market data. A steady unemployment rate and a robust wage growth reading will help the Pound recover; 1.33 is the near-term ceiling and a move above it exposes the 1.3350 monthly highs while a bearish report will put pressure on Cable towards the 1.31 area.
Commodities had a negative day at the beginning of the week with Gold unable to recover further but Oil was the major loser. Prices dropped close to 5% on the back of comments from US Treasury Secretary Mnuchin that the US might be more lenient against countries that need more time to trim down their supply of Iranian oil imports. It's crucial to highlight here that lower oil prices could result in a slowing US inflation and this would not be good news for Dollar bulls. Such a development would cast doubts on whether the Fed will indeed hike rates 4 times this year so Crude prices levels need to be closely monitored going forward.
Finally, equities had a mixed day with most European and US markets in the red yesterday. This morning Asia trades in a mixed manner as well with the Nikkei marginally higher while the Hang Seng and the CSI 300 are around 1% below water. The earnings season is in full swing in the US but the miss in Netflix's results yesterday weighed down on the rest of the FAANG stocks. Today the focus will be on Goldman Sachs' report while the European and US futures point towards a moderately bearish opening bell. The FTSE in the UK threatens to break below 7,600 points which can drive prices around 100 points lower while the Dow Jones trades just above 25,000 points with the uptrend still in effect - support lies around the 24,900 points' area.
MARKET EVENTS TO WATCH
- UK Unemployment Rate - 12.30pm
- UK Average Weekly Earnings -12.30pm
- Fed's Powell to Deliver Semi-Annual Testimony Before Senate Panel - 6pm
All times are GMT +4.