A mixed performance for the currency markets on the back of the another miss in US data, with the inflation reading coming in softer than expected this time, while Brexit still remains unresolved. After the confusing NFP report last Friday, another piece of US figures disappointed the Dollar bulls yesterday. At the same time, the spotlight remains on the Pound after another rejection of PM May's proposals with the UK currency going on a rollercoaster ride throughout yesterday's session; today the Commons will hold another key vote. Gold continues to rise while Oil stalls again as it enters the $57 area.
The Euro continues to benefit from Dollar's lack of momentum with prices hitting 1.13 overnight. This is quite a performance for the shared currency, given the dovish bias communicated by the ECB during their recent monetary policy meeting. This suggests that Euro's gains have to be fully attributed to Dollar's weakness, which may pose a risk for a continuation of the run higher. At this time, momentum to the upside does seem to be slowing down but for a reversal and a move lower we would need a strong pro-Dollar catalyst, and this may be hard to find this week. As such, as long as the Euro trades above 1.1250, the chances of a further continuation higher remain intact.
The Pound rallied from 1.30 to 1.33 yesterday, only to reverse course and trade to 1.30 again. Volatility has been Sterling's middle name over the past few weeks as the Brexit saga enters its final stage, with the Parliament rejecting May's proposal yesterday. Today, the Commons will vote again to request an extension to Article 50's deadline in order for the UK and the EU to agree on an exit deal, as there is none to be found at this stage. The Pound is trading above 1.31 this morning, in expectation of the delay request, which is seen as positive given that a no-deal Brexit would be taken off the table, at least for now. The short-term ceiling for the UK currency is the 1.3350 area and if a delay is requested and granted we should see prices trending towards that area.
Gold continues to benefit from the lackluster US data and prices have now reached the $1,305 resistance, which is an important medium-term level. Geopolitical risks seem to have eased in recent weeks and Gold's gains have to be mainly attributed to Dollar's unstable performance, but this is not to mean that the yellow metal can't continue rising. There's little in terms of key US data pending for release during the rest of the week and given the downbeat greenback bias, Gold may see further gains with $1,315 the next potential target. On the flip side, a rejection of the $1,305 resistance will see Gold traveling towards $1,290 again.
Oil stalled as it entered the $57 area and now there are two scenarios for the short-term: either prices will again reverse lower and look to extend the consolidation between $54 and $57.50, in which case we should see a correction towards the $56 area over the next couple of days or an attempt to break higher, with the $58 level being the first obstacle and the $60 mark the short-term target.
Equities are about to open in the red in Europe this morning while the US futures also point lower. Investors remain on the defensive as worries over a global slowdown seem to cloud their minds. Granted, the pause in the Fed hiking schedule and the ample central bank-provided liquidity are positive catalysts but market participants continue to ask why this U-turn in central bank policy. The answer seems to point towards a synchronized slowdown in global growth, hence the “wait and see” approach we've seen in recent sessions.
MARKET EVENTS TO WATCH
- US Durable Goods Orders - 4.30pm
- DOE U.S. Crude Oil Inventories - 6.30pm
All times are GMT +4.