Thursday, April 25, 2019

The Dollar marches higher while the rest of the majors could see more weakness ahead

Tags
  • Dollar
  • Gold
  • Yen
  • Euro
  • Pound
  • Stocks
  • Oil

MORNING BRIEFING

The Dollar gains across the board with the rest of the major currencies suffering from domestic performance metrics, central bank policies and political uncertainties. The Dollar Index climbed above the 98 area to trade close to its highest level since December 2017 ahead of tomorrow's US GDP report. The Euro and the Pound retreated further on the back of more bearish data and persisting domestic uncertainty, Gold is seeing a mild recovery and Oil hovers around $66.

The greenback is seeing gains versus its peers even though Treasury yields continue to decline towards the 2.5% level. So the question becomes: is this attributed to its intrinsic strength or is it more an issue of relative under-performance from its counterparts? We believe it's the latter, with the Euro, the Pound and the commodity dollars trending to the downside for different reasons. Starting with the shared currency, the German IFO report was the key event yesterday and the weaker than expected figures added to Euro's woes.

Business confidence in Europe's largest economy is suffering on the back of the weakness seen in the manufacturing sector. The IFO figures yesterday reflected this bearish bias and the Euro extended its decline below the 1.12 mark. Prices have now dropped to the 1.1150 area and a further extension lower points towards 1.10 in the medium term. Unfortunately for Euro bulls, ECB's policy remains bearish and with the data pointing to persisting weakness the odds for prices to continue pushing lower are mounting.

Sterling is also on its way lower: after the break below the 1.30 mark, prices have now reached the 1.29 area on the back of Dollar's strength but also on the ongoing uncertainty in regards to the domestic political landscape. Brexit talks are now back on the schedule after a brief break but there doesn't seem to be enough common ground between Brexiteers and Remainers for a solution to be found soon. The chatter revolves more around when and how Theresa May will resign as PM, which casts a bearish light on Sterling's outlook. A further extension of the losses points towards 1.28.

Gold picked up some mild demand and is now attempting to reach the $1,280 level, which is the near-term resistance. In contrast to the rest of the major instruments, the yellow metal didn't succumb to Dollar's advance but this will be put to the test when prices make an effort to overcome $1,280. Should they succeed, then the $1,290 area will come into focus otherwise another move towards the $1,267 lows will be the way forward. Oil hovers around $66 after the news that the US will not extend the waivers on Iranian oil and it now remains to be seen whether increased output from the Gulf countries will keep supply levels stable or force another rally higher.

Equities ended the day in the red yesterday with Europe marginally below water and the US markets closing 0.2% lower on average. Strong earnings from Microsoft and Facebook were not enough to keep the US indices in positive territory but futures on either side of the Atlantic are pointing higher this morning. This suggests that investors are still focused on the positive quarterly figures, with 80% of the S&P 500 companies having reported their results so far topping estimates. European banks come to the forefront today with UBS and Barclays due to report their Q1 performance.

MARKET EVENTS TO WATCH

  • US Durable Goods Orders - 4.30pm
  • US Initial Jobless Claims - 4.30pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Research