Monday, July 9, 2018

Softer NFP data leaves the Dollar defenseless, equities rally ahead of earnings' season

Tags
  • Dollar
  • Euro
  • Pound
  • Stocks

MORNING BRIEFING

A mixed Non-Farm Payrolls report on Friday keeps the Dollar on the defensive at the start of the week while investors turn their gaze away from the trade war and instead focus on the upcoming earnings' season. At the same time, Theresa May seems to have survived the confrontation with her pro-hard Brexit ministers but not without casualties as David Davis resigns. Equities are looking positive in Asia and futures point towards a bullish London opening in Europe.

The Dollar seems unable to break its bearish trend for yet another day today on the back of Friday's NFP data. The report beat expectations in terms of the jobs added in the US economy but the unemployment rate and more importantly wage growth printed softer. In the aftermath of the report, the Dollar continues to lose ground with the European majors and commodity dollars edging higher. With little in terms of fresh data from the US during the first 72 hours of trading this week Dollar's weakness is likely to continue. Dollar/Yen is trading just above last week's 110.30 lows and a break lower exposes the 110.00 and 109.50 areas.

The Euro is pushing higher taking advantage of Dollar's bearish tone hitting 1.1750 this morning. The shared currency is on a bullish trend right now following ECB's comments last week and Dollar's under-performance. Mario Draghi will be speaking in public today and tomorrow's ZEW Survey are the key events ahead and barring any surprises the Euro should remain the 1.1740 support. As long as this is the case and the Dollar lacks momentum we could actually see the Euro rallying towards 1.1840 over the next few days.

The British Pound is starting the week on a positive footing breaking above 1.33 during the Asian session. Over the weekend, Brexit Secretary David Davis and his deputy resigned following the cabinet meeting with PM May on Friday. On a positive note, May was able to persuade her ministers that a softer kind of Brexit is more favorable and this is the reason why the Pound responds favorably this morning. However, Davis' departure highlights the division among May's administration and questions whether she can remain in power. Price action in the Cable this week hinges on fresh news from this front so the Pound might be quite volatile over the next few days.

Commodities are trading on a similar trajectory this morning with Gold around the $1,260 area while Oil bounced higher on Friday to reach the $74 level again. The yellow metal was not able to take advantage of Dollar's weakness yet and remains capped below the $1,260 resistance but as long as the greenback lacks support a breakout is possible and the next area to focus lies around the $1,267 mark. Oil remains in demand and as long as the uptrend remains in place then a move above $75 towards $77 seems likely.

Equities in Asia are trading strongly above water this morning and the European and US futures point towards an equally positive start. Investors prefer to disregard the trade war developments with the US imposing the first round of tariffs against China on Friday. Instead, the prospect of a strong earnings season is propelling equities higher while Dollar's weakness creates the perfect environment at the start of the week. The DAX is setting its sights on the 12,650 level while the Dow Jones will attempt to finally break above the 24,500 resistance with a view to rally 300 points higher.

MARKET EVENTS TO WATCH

  • ECB's Draghi Speaks to European Parliament in Brussels - 5pm

All times are GMT +4.

 
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