The Dollar started the week on a high note yesterday advancing higher against all of its peers on the back of strong US growth and elevated trade tensions between the US and China. The US currency continues to benefit from the exchange of threats and tariffs between the 2 nations and with the domestic figures remaining in positive territory the short-term bias for the greenback points higher. Equities had a mixed day with Europe marginally lower and the US ending the day above water and the futures are suggesting a mixed opening this morning.
Starting our review with the Dollar, it seems that Friday's mixed NFP figures were only a blip on the radar and as soon as the dust settled investors continued buying the greenback. It's the combination of positive domestic figures and the threat that the trade war poses on global growth that drives investors to bet on the Dollar against the higher beta currencies like the Euro and the Pound. The economic calendar is relatively empty for a second day in a row so the trend in place should continue with the Dollar on the offensive versus its peers.
The Euro and the Pound are sliding lower as the Dollar gains and investors prefer to bet in favor of the continued US domestic growth - at least for the time being. The shared currency dropped to a fresh 1-month low and even though we saw a correction attempt during the US session the dominant trend points lower. Today, the German Industrial Production data will kick off the day and with indications suggesting a softer reading the Euro could resume its slide towards the 1.15 mark.
The Pound is on a similar trajectory hitting a 11-month low on the back of discouraging Brexit-related news over the weekend. The UK Trade Minister suggested that a “no deal” Brexit is becoming increasingly likely and with these comments coming on the back of BoE Carney's remarks that BoE policy might have to be adjusted depending on the exit negotiations the Pound tanked. Looking ahead, Sterling will take its cue from the trade chatter as well so unless we see a significant change in sentiment the trend points lower and the next area of focus is found around the 1.2850 level.
Commodities remain on their diverging paths this morning with Gold dropping lower at the start of the week and Oil testing the $70 resistance. For the yellow metal, even though one would think that the elevated trade tensions would drive investors towards the safe haven instrument, Dollar's momentum is proving too difficult to overcome. In the near term though, a re-test of the $1,205 lows might provide an opportunity for a short-term recovery towards the $1,213 and $1,218 levels. Oil tries to break above $70 again and the $70.50 level is the barrier to overcome: a break above opens up the $72 level while a failure will drive prices towards the $68 support again.
Equities had a mixed day yesterday with Europe mostly in the red and the US markets managing to end the day in positive territory. This morning, the Asian bourses are mostly above water but the rest of the global futures are pointing towards another mixed opening. Investors are trying to build some momentum but the lingering threat of more threats from the US on China and vice versa demands restraint dampening traders' appetite. Having said that, as long as the US markets are edging higher, European equities should be able to recover most of their losses from last week.
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All times are GMT +4.
Written by Konstantinos Anthis, Head of Market Research