Friday, July 27, 2018

The Dollar comes front and center ahead of the US GDP report

Tags
  • Dollar
  • Gold
  • Euro

MORNING BRIEFING

The Dollar is on the rise at the end of the week with investors looking to buy the currency ahead of the release of the US GDP report later today. The greenback is posting gains against all of its peers and threatens to kick off another bull rally ahead of next week which will be filled with important US data. At the same time, the Euro is under pressure both from Dollar's move but also from Draghi's unwillingness to clarify when the ECB will begin raising interest rates. Equities are expected to open higher today with futures on either side of the Atlantic trending higher.

The greenback is our top story this morning as the US currency is climbing higher. Investors are loading their Dollar long positions preparing for a host of data from the States that is expected to showcase the robustness of the domestic economy and propel the currency higher. The release of the US GDP levels today will be the opening act and analysts are eyeing an impressive printing while next week the release of the PCE inflation figures and ISM Manufacturing levels will precede the Fed interest rate decision on Thursday.

In terms of price action, the Dollar is moving higher across the board: the Euro is at 1.1650 with 1.16 coming up as the next area of support, the Cable is at 1.31 and could go all the way to 1.30 while for Dollar/Yen the interim 111.50 resistance stands in the way of a broader reversal to the upside. Commodity dollars are reverting to their means as the recent attempt to build momentum to the upside collapsed and Dollar's resurgence should drive prices back inside the broader sideways ranges seen over the past 30 days.

The Euro collapsed yesterday as the bulls didn't get the forward guidance they were hoping for from Mario Draghi. The head of the ECB was very pleased with the progress of the domestic economy but wouldn't offer a more precise date on when the central bank will begin raising interest rates. Just to clarify though, Draghi was not bearish at all which suggests that Euro's decline had more to do with traders shifting their focus on the Dollar and buying the currency ahead of the upcoming data rather than selling Euros. For the short-term though, the bias is to the downside and we could see a retest of the 1.16 lows.

Commodities went on their own way yesterday with Gold succumbing to Dollar's rally while Oil was able to remain on an upwards trajectory. The yellow metal failed to overcome the $1,235 resistance and naturally reversed lower and with the Dollar in the ascendancy now the next area of interest is found at the $1,217 level. Oil on the other hand managed to stay above $69 but the key challenge remains the $70 mark; as stated before, a clear break of this level is needed and should it come we will focus our attention on the $78 level.

Finally, equities had a positive day with the European markets closing higher for the day while the US bourses were mixed. The Dow Jones closed half a percent higher but the S&P and the NASDAQ ended the day below water. This morning, the Asian markets are mixed but the futures are pointing towards a bullish opening bell on both sides of the pond. Investors are happy to see that trade tensions are easing further which provides fresh buying momentum. American Airlines and Exxon Mobil are expected to release their results today capping a mostly positive week for US equities with the exception of Facebook that saw its shares dropping like a stone.

MARKET EVENTS TO WATCH

  • US Gross Domestic Product - 4.30pm
  • Univer. of Michigan Sentiment - 6pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Market Research

 
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