At the end of last week the Dollar pushed higher on the back of the stronger than expected NFPs that exceeded analysts' expectations. At the same time, an unclear outlook regarding the US-China relationship drove investors towards the safety of the US currency, while equities reversed to the downside. The Euro and the Pound start the week lower while commodities take diverging directions. Gold remained near its recent levels while Oil continues to decline.
The greenback demands our attention this week with two key events poised to provide direction: the US mid-term elections tomorrow and Fed's interest rate decision (and accompanying statement) on Thursday will be crucial in deciding Dollar's next move. Having said that, Friday's NFP report was on the bullish side, with the amount of jobs added hitting 250k, which means that the Fed will remain on course to raise interest rates in December, painting a positive outlook for the Dollar.
However, the mid-term elections tomorrow pose a significant risk to the US currency. If the Democrats succeed in taking control of the House, this will complicate things for Donald Trump's administration. A divided Congress will make it more difficult for the US President to pass the legislation he wants and this would be a bearish catalyst for the US currency, especially towards the end of the year. Nevertheless, until we get a clear picture of what the outcome of the elections will be, the greenback should continue on the same positive tone. Today, the release of the Non-Manufacturing ISM data is expected to come in a bit softer but well within positive territory keeping the Dollar in demand.
The Euro succumbed to the Dollar's strength after the NFPs were released on Friday and the shared currency ended the week just below the 1.14 mark. This is a relatively quiet week for the Single currency which will take its cue from the Dollar and the broader risk sentiment. With the US currency remaining in control, barring a surprise in the mid-terms tomorrow, the Euro may see a deeper correction lower. Technically, the downtrend that started at the end of September still remains in place so the path of least resistance points lower for the Euro with a view to retest the 1.13 lows.
Finally, the Pound will be front and center as well today. The release of the UK PMI data today will keep the UK currency in play and after a series of positive sessions it may be time for a pullback: the Services data today is expected to come in softer which suggests that a retest of the 1.2930 support may be imminent. If the Pound holds above this level then an extension higher later in the week is still on the table, otherwise 1.27 appears as the next stop lower.
Gold traded sideways on Friday staying above the $1,230 level as the combination of a stronger Dollar and a risk-off bias left the yellow metal unchanged. Looking ahead, the Dollar will be the prime catalyst for Gold and more strength from the US currency will drive prices lower again; however, a sudden change in sentiment is also possible in which case we will see prices retesting last week's highs. Oil continues to trend lower and the next support lies around the $62 area.
Equities in Asia are trading with a bearish bias as the US-China trade war relationship is back on the forefront. Confusion on whether a truce between the two sides is possible is keeping investors on the defensive while the risk of a divided Congress, in light of tomorrow's mid-term elections, is also weighing down on risk sentiment. The European and US futures are trending to the downside suggesting a bearish opening bell at the start of the week.
MARKET EVENTS TO WATCH
- UK Services PMI - 1.30pm
- US ISM Non-Manufacturing/Services PMI - 7pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research