Tuesday, April 23, 2019

The Dollar starts the week looking bullish but the US GDP data will be the key catalyst here

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

MORNING BRIEFING

Subdued activity in the currency and equity markets was the theme during the Easter holiday as traders and investors took a break from the day-to-day action. The major currency pairs were virtually unchanged during the past 2 sessions, with the exception of the Dollar/Yen that spiked a bit lower this morning. The Dollar remains unfazed even though 10-year UST yields are moving higher on the back of the retail sales report beating expectations by a wide margin. Gold treads water between $1,275 and $1,280 while Oil surged to $66 after the White House announced the end of the waivers on Iranian oil imports by May.

Maybe the most intriguing debate of the week is what direction will the Dollar take going forward. The US currency has seen a mixed performance over the past few weeks on the back of somewhat bearish domestic figures and a patient Fed policy. At the same time though, worries in regards to growth in regions like Europe, the UK and China among others has kept the greenback in demand. Having said that, the US retail sales report last week was a key metric to keep an eye on and the fact that it beat analysts' predictions was supposed to be a huge relief for the Dollar bulls.

So why hasn't the greenback rallied since the release of the consumer spending figures? One interpretation is that investors were busy planning for their Easter holidays and preferred to deal with the Dollar's outlook after the 2-day break. A different, and maybe more likely explanation, is that market participants need more evidence of domestic improvement in order to go on the offensive and this brings the US GDP report, pending for release on Friday, to the forefront. We will speak more about our GDP expectations later in the week, but in the interim we expect the greenback to trade with a positive bias. Dollar/Yen is recovering from its earlier spike lower and if prices break above last week's highs an attempt towards 112.50 is likely.

The Euro saw a mild pickup during the holiday trading sessions recovering towards the 1.1250 level after dropping heavily last week when the Eurozone manufacturing PMIs confirmed the slowdown in regional productivity. Nevertheless, the spotlight now falls on the release of the German IFO Survey and depending on the way the figures print we may see a further push lower. Prices are currently hovering around the 1.1250 level but a penetration of last week's lows will likely clear the path towards the 1.1130-40 area, unless the US GDP report disappoints.

At the same time, the Pound also looks bearish both from a technical and sentiment-based perspective. Starting with the latter, Brexit-related talks between Theresa May and her Labor counterparts will resume today and the British PM's political future lies in the balance. Meanwhile, a descending triangle pattern has formed on the 4-hour Cable chart with the 1.30 level as the key support. A potential break below this psychological level and the absence of any significant support beneath it suggests that Sterling may drop to 1.28 soon.

Gold attempted to recover above $1,280 yesterday but swiftly reversed lower again and is now trading around the $1,272 area. The short-term bias is negative and it looks likely that the yellow metal's next stop will be around the $1,267 mark. Oil on the other hand looks bullish, spiking to $66 yesterday after the US announced that they will not extend the waivers on Iranian exports, threatening to squeeze supply. The rally remains strong this morning and prices could extend their push towards $66.50 before slowing down.

Equities kick off the week on a positive note with futures in Europe and the US pointing higher. The quarterly earnings' season is in focus and investors' attention will be divided between US technology companies and European banks this week. Heavyweights Amazon, Microsoft, Facebook and Twitter will report their earnings over the next few days and, apart from Jeff Bezos' company, all the other tech giants may show reduced profitability. In Europe, Deutsche Bank, Barclays, Credit Suisse and UBS will take center stage but slower regional growth may be reflected on their figures.

MARKET EVENTS TO WATCH

  • Euro-Zone Consumer Confidence - 6pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Research

 
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