The week seems to start on a positive footing for the US Dollar that didn't have the best of performances on Friday on the back of the Non-Farm Payrolls report. The data printed mixed and the greenback initially moved lower as investors were hoping for something better. Equities had a positive day though on Friday and this upbeat tone seem to spill over to this week's opening.
The US Non-Farm Payrolls report was the key event of the past week. Even though analysts had made it clear that the number of added jobs to the US economy would fall, the actual printing of lower job growth in combination with a steady reading of the other two components disappointed Dollar bulls. However, it wasn't only the NFPs that slowed down Dollar's advance: the PBOC announced that they raised the reserve requirements on FX forward contracts, a move designed to support the Yuan versus the Dollar.
Do these two factors stem Dollar's rally to the upside? We believe that this remains to be seen and the reason we say this is because there are two conflicting forces in action right now: a robust US performance during the past few months versus expectations for a slowdown of growth in the US during Q3 and Q4 - which could become worse if trade tensions take their toll on the economy. In the short-term however, Dollar's momentum seems to continue pointing higher, especially ahead of Fed's rate hike due next month and other bank's hesitation to follow suit.
The beginning of the week is empty of any important events or reports so trade tensions will be the key driver. With Trump having decided to escalate the tariffs on China and the Asian nation promising to retaliate, the higher beta currencies will find it hard to build momentum. The Euro is trading at 1.1550 this morning and a further extension points towards the 1.15 floor while the Pound has more room lower towards the 1.2950 area.
Commodities seem to also lack momentum to the upside at the start of the week. Gold rallied to $1,220 on Friday but Monday's price action sees the yellow metal reversing lower again which could point towards the $1,205 level again. Oil struggles to overcome the $69 resistance for the time being which suggests that further sideways trading between $67 and $69 is likely, at least for now.
Equities had a very positive day on Friday regardless of the mixed US jobs report and China's decision to respond in kind to the proposed US sanctions. This morning, the Asian markets are trading above water with only the Nikkei slightly in the red while the European and US futures are pointing towards a positive opening bell. It will be very interesting to see whether the European indices will be able to recover last week's losses and this will largely depend on whether the US markets can lead the charge and break above recent highs.
MARKET EVENTS TO WATCH
All times are GMT +4.