Investors are looking at the recent string of US data with growing concern as more incoming figures suggest that the US economy is about to slow down. The Dollar is coming under pressure on the back of this weakness, allowing the rest of the majors to climb. The Euro, the Pound and the Yen all moved higher while Gold was also in the ascendancy. Equities are mixed this morning while Oil continues to advance.
The Dollar resumed its slide after the NFP report which printed mixed last week and what was a soft Durable Goods Orders report yesterday. The release of the CPI inflation reading over the next 48 hours and the FOMC minutes are what investors are interested in and, if they see evidence of further slowdown, then the greenback will decline more. Dollar/Yen has dropped below the 111.50 level and more pressure to the downside will expose the 111 and 110.50 figures, especially if stocks see more losses.
The Euro was among the winners of the day moving sharply higher and reaching the 1.1270 area, supported by the broader Dollar weakness. Clearly, the key event going forward is the ECB meeting on Wednesday and, with the central bank having grown more dovish recently, the risk is to the downside. More comments over an easier monetary policy coming from Draghi will not bode well for the shared currency; the level to keep an eye on is the 1.1250 area and a penetration below that will again bring the 1.12 round figure into focus.
Sterling was able to score a significant advance over the past 24 hours which allowed it to test the 1.31 area this morning. However, news from Britain suggests that the Labor party is playing “hardball” and are not willing to give PM May the support she needs to get her deal over the line. As such, what will dictate the price action going forward will be whether the European Union is willing to give May the extension she needs to secure more votes, or proceed with snap elections. The deadline is on Friday and if the EU approves May's extension request prices will soar towards the 1.32 mark again, otherwise a no-deal scenario would mean an immediate break of the 1.30 support and a decline that is hard to quantify.
Gold broke above the $1,300 mark yesterday but the rally stalled ahead of the $1,305 and $1,310 levels. The key driver behind the yellow metal's push higher is the weakness seen in the greenback and with Treasury yields turning lower again this morning, we may see a further advance. The near-term resistance stands at the $1,305 area and an extension of the gains points towards the $1,310 level. Oil is moving higher again and our $64 target has been hit; the short-term studies do highlight some exhaustion and even though we may see $65 soon, the odds of a correction in the short term are mounting.
Equities had a marginally positive start for the week with most bourses closing above water. This morning futures in Europe are mixed, with the FTSE 100 in positive territory and the DAX pointing slightly lower. The US markets are expected to open just below water as investors are a bit worried about a potential slowdown in the US, following the string of bearish domestic data. In any case, we think that the fundamental catalysts are still supportive of more gains and we remain optimistic.
MARKET EVENTS TO WATCH
- NFIB Small Business Optimism - 2pm
All times are GMT +4.