The Dollar is on the ascendancy on the back of positive news from two key fronts: the aversion of another US government shutdown and optimism surrounding the Sino-US trade talks. The US currency is pushing its peers to fresh lows as the fresh news is extending the greenback's gains seen last week. The Euro and the Pound are taking heavy losses while Dollar/Yen finally broke above the 110 barrier. Equities are green across the board, Gold bounced off its lows but lacks follow-through and Oil is trading above $52 this morning.
President Trump sent an upbeat message from a rally in Texas in regards to the fresh round of trade talks between the US and China. He said he would “make great deals on trade” and was optimistic about reaching an agreement with the Chinese side. There's also a rumor that him and President Xi are likely to meet very soon to conclude an agreement between the world's two strongest economies. The news was well received by market participants that sent the Dollar higher as risk aversion subsided on the back of the positive tone.
At the same time, negotiations between Democrats and Republicans are said to have reached a deal that will keep the US government funded while also providing funds to Trump to build his wall with Mexico. The wall funding is far less than what Trump wanted but it is still a victory, if confirmed, as the Democrats' long-standing position was “no money for a wall”. Following the positive news from both fronts the Dollar broke above 110 against the Yen and is looking poised for a run towards 111 in the short term as Treasury yields are again pointing higher this morning.
The Euro continues to suffer from Dollar's strength and the string of bearish European data. Prices have dropped below 1.13 and the shared currency has now printed a new yearly low trading around the 1.1270 area. The problem for the Euro in the short term though is that the key German and Eurozone GDP figures are yet to be released and when this happens later in the week another soft printing will likely push prices further lower. Should the Euro penetrate the 1.1270 mark, the next support is found around the 1.1220 figure and below that there's nothing until the 1.1100-20 area.
Gold is trying to carve a bottom at this stage coming under pressure from the surging Dollar and the reduced risk aversion. Prices have recovered slightly overnight and are now trading around the $1,310 area; from a technical perspective, as long as Gold is trading above the $1,300 mark, the long-term outlook remains bullish but we need to remain cautious as a potential trade deal between the US and China may reduce risk-off demand and put this level to the test. Oil found support below the $52 level and manages to recover after briefly trading below that; short-term studies suggest that the momentum fueling the recent bearish wave has subsided so a bounce towards $54 looks likely.
Global equities started the week in a positive fashion with the European markets closing around 1% higher while the US bourses were mostly mixed. This morning though stock futures around the globe are pointing higher as investors rejoice the positivity coming from the US-China trade talks and the apparent agreement between Democrats and Republicans to keep the government funded. However, whether this upbeat tone will be enough to push stocks higher again remains to be seen as concerns about an impending global slowdown may quickly replace the bullish bias currently in place.
MARKET EVENTS TO WATCH
- BOE Governor Carney Speaks in London - 5pm
- Fed's Powell Speaks in Mississippi - 9.45pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research