Monday, October 29, 2018

Fresh European data may help the Euro recover, US PCE on the docket today

Tags
  • Dollar
  • Gold
  • Euro
  • Pound
  • Stocks

MORNING BRIEFING

A rather busy week lies ahead with fresh data pending for release from around the globe while currencies and equities are hovering near key levels. The European majors along the commodity currencies bounced off their lows just a few hours before Friday's close even though investors were focusing on the release of the US GDP report that came out strong. Commodities ended the week relatively unchanged while equities were in the red.

The first 24 hours of the trading week will be somewhat quiet with only fresh data coming in from the US. However, the importance of the US PCE figures cannot be overstated as it is the Fed's preferred inflation metric and its printing today may provide the Dollar with fresh stimulus. Expectations are set for a slightly better monthly reading that will reinforce the odds of the US central bank continuing on the same gradual hiking path; however, a miss in the report today will allow the European currencies to extend their recoveries and the Japanese Yen to rally further. In any case, the NFP report on Friday will be the major event of the week and it will also be closely monitored by investors.

The Euro begins the week around the 1.14 level being under pressure during the past few trading days. Nevertheless, there's a flurry of key reports throughout the next few days that may help the European currency recover: the German and Eurozone inflation figures, the German retail sales report and the EZ GDP data will all be released this week and analysts are expecting an uptick in the majority of the reports. Euro's troubles seem more political than economical hence a round of positive data may allow investors to focus on the hard figures and buy the shared currency with a view to return above 1.16.

The Pound trades above 1.28 this morning after a couple of weeks that have seen prices decline more than 2.5%. On Thursday, the Bank of England will be releasing their rate decision and even though we don't expect any changes in policy at this time, Governor Carney's press conference will be important. Brexit and the lack of progress is the main issue for the UK economy and the Governor's comments will dictate the price action for the British currency. A positive rhetoric and potential Dollar weakness may see prices returning to 1.29 while further pressure to the downside will send the Pound towards the 1.2720 lows.

Commodities were largely unchanged at the end of trading on Friday with Gold unable to break higher while Oil continued to trade around its recent lows. For the yellow metal, the outlook seems bright but for more gains to come in we will need a clear break above the recent highs at $1,238; otherwise, a retreat towards the $1,213 area is the next case. Oil consolidates around $67 and momentum seems to be shifting higher and a move higher from current levels will bring prices back to the $68.50 and $70 areas.

Equities ended the week in the red and this morning the European and US futures are pointing mostly to the downside. Corporate earnings is the major concern for traders that are worried whether the effects of Trump's fiscal policy are now wearing out and his trade war with China is taking a toll on corporate profitability. In any case, the European and US markets look poised to kick off the week on a bearish note so more defensive positioning will be needed today.

MARKET EVENTS TO WATCH

  • US Personal Consumption Expenditure - 4.30pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Research

 
Billion
Positions Opened
 
Thousand
Active Users
 
Trillion
Traded Value