The Dollar starts the week on a downbeat tone following the mixed US Non-Farm Payrolls report last Friday that showed both signs of strength and weakness in the domestic economy. The number of jobs added to the US labor force beat expectations and the revision of last month's abysmal printing helped ease investors' worries but wage growth missed badly. The European majors came under some initial pressure after the NFP report but whether this lasts will depend on the key events coming up this week. Gold is pushing higher though, while equities kick off trading on the bearish side.
After the initial knee-jerk reaction to the upside after the NFPs, the Dollar's short-term outlook is now put to the test. The US jobs report showed an impressive amount of new entrants to the labor market but the Avg. Hourly Earnings component missed. Wage growth is important for the US economy's health and the fact that we witnessed a decline in salaries' growth falls in line with the weakness seen in consumer spending and confidence earlier this month. Yields dropped as lower wage growth, reduced consumer spending and expectations for lower inflation mean that the Fed has every reason to continue on its current pause in tightening and may even consider cutting rates if this trend continues.
This week, the Dollar's price action will depend on the way the pending US reports print: Durable Goods Orders today, Mortgage Applications on Wednesday and the US Consumer Price Index figures the same day will dictate the way forward. With expectations set for a lower reading in the durable goods' report and further weakness predicted in the CPI inflation data, the Dollar looks poised for more losses. Dollar/Yen is trading around 111.50 this morning and, after a hefty rally, a correction could take prices all the way to the 111 and 110.50 marks.
The Euro is treading water around the 1.1220 level, extending its sideways price action for the fourth day in the row. Dollar's weakness this morning is leaving the shared currency unfazed as investors appear unwilling to go on the offensive just a couple of days ahead of the ECB meeting. The European Central Bank is meeting on Wednesday and Mario Draghi's comments will be closely followed by the markets; the central bank has turned dovish in recent times, citing the weakness seen in the Euro area and the global geopolitical headwinds and the question has now become whether we will see fresh easing measures from Draghi and co. The important keyword on Wednesday will be “TLTRO” and if Draghi makes a reference to the ECB planning to inject further liquidity into the Euro area, the Single currency will naturally decline. Prices are currently holding above the 1.12 mark but more pressure to the downside will threaten to break this key support and an extension lower exposes the 1.1150 area.
Gold is seeing support to the upside this morning following the US NFP report that seems to have hurt more than benefited the Dollar. The yellow metal is pushing higher, breaking above the $1,295 resistance after spending last week trading below it. A continuation higher brings the $1,300 mark into focus again and this will be a crucial test for Gold's medium-term outlook: a penetration of this area will attract investors' attention and prices may eventually extend their rally all the way to the $1,310 mark. Oil is pushing higher again reaching above the $63 mark and we remain optimistic that our $64 target will be reached soon.
Global stocks ended last week on a high note after market participants were happy to see that the US economy added an impressive amount of new entrants, after last month's disappointing figure. However, futures this morning are pointing lower in Europe and the US. Investors may be growing a little bit nervous after seeing equities reaching recent highs again, amid signs of weakness in the US domestic economy. Nevertheless, the positive fundamental conditions do remain in place, with the Fed looking to hold rates unchanged for an extended time and trade sentiment improving, so we continue to hold a bullish outlook over the global stock markets in the medium term.
MARKET EVENTS TO WATCH
- Euro-Zone Sentix Investor Confidence - 12.30pm
- US Durable Goods Orders - 6pm
All times are GMT +4.