Tuesday, July 24, 2018

Dollar tries to pick up the pace as yields climb higher, can Euro move back above 1.17?

Tags
  • Dollar
  • Yen
  • Euro
  • Stocks

MORNING BRIEFING

The Dollar trends higher during the first 24 hours of trading this week as US Treasury yields climb amid expectations for a positive US GDP report on Friday. The Euro drops below 1.17 even though Consumer Confidence printed marginally higher while equities had a positive day. The focus today will be on the release of the Eurozone Services and Manufacturing PMIs while traders will also focus on the US PMI data later in the day.

The Single currency was not able to hold on its previous gains yesterday and retreated from the 1.1750 highs as the Dollar was picking up steam. Nevertheless, the Euro still trades around the key 1.17 mark and the test of this support area will decide whether the uptrend is still alive. Today's PMI data will be the catalyst that will either help the Euro move higher or force to retreat further; analysts are expecting marginally softer figures but a surprise higher is not out of the question. The targets to the upside for the Euro sit at the 1.1750 level and an extension higher will drive prices towards 1.18 while a further move lower exposes the 1.1650 support.

The Dollar is seeing fresh demand after last week's losses that were driven by Trump's “weaker Dollar” preference and his comments towards that direction. Having said that, the US growth still supports the case for a robust performance for the greenback and with expectations set for a hawkish GDP report on Friday traders are positioning themselves in favor of more gains. Dollar/Yen is at the forefront and if the currency pair can overcome the interim 111.50 resistance then a move towards the 112.20 highs should be next.

The British Pound displayed a solid performance yesterday dropping only 50 pips to withstand the pressure of the rising Dollar. As we discussed last week, it seems that the path is clear for the Pound to move higher over the next few days as UK politics is taking a break and the odds for a BoE rate hike in August remain consistently above 80%. Having said that, for our bullish scenario to materialize a move above the 1.3150 highs is needed and that should then trigger more buying interest towards the 1.3250 area.

Commodities remain subdued as the rising Dollar put pressure on Gold and Oil's prices. Both instruments moved lower yesterday with the yellow meta looking poised to test - and possible break - the $1,215 lows while Oil dropped below $68 per barrel again. For Gold the bearish scenario suggests that if the $1,215 lows give in prices could drop even below the $1,200 round figure. Regarding Oil's outlook, it will be crucial to see whether prices will again rebound from the $67 mark, otherwise a move towards the $63 area seems the next step.

Equities in Asia are trading with a positive bias this morning after a marginally negative day for US stocks while Europe ended the day below water. This morning, the European and US futures are suggesting a mixed opening bell with the FTSE 100 and the Dow Jones contracts pointing higher while the rest of the markets are likely to open a bit lower. Strong earnings' reports are finding it hard to offset the negative tone set by Donald Trump so we should be in for a choppy London opening that could turn positive as the day progresses.

MARKET EVENTS TO WATCH

  • Eurozone Manufacturing PMI - 12pm
  • Eurozone Services PMI - 12pm
  • US Manufacturing PMI - 5.45pm
  • US Services PMI - 5.45pm

All times are GMT +4.

 
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