The Dollar remains unchanged this morning on the back of President Trump's decision to impose $200 billion in new tariffs against Chinese imports on September 24 while contemplating over an additional $267 billion salvo soon. The European majors are pushing higher taking advantage of Dollar's lack of momentum but equities were in the red yesterday and futures in Europe and the US are hinting on a bearish opening bell today.
10-year Treasuries declined yesterday partially explaining Dollar's lack of reaction to Trump's decision but yields have been moving higher since last night pointing towards a stronger greenback going forward. The Chinese reaction has not been announced yet but with the US President threatening further levies if China retaliates, their response might be the straw that will break the camel's back and force yields and the Dollar higher. A retest and potential break of the 3% ceiling for the 10-year yield may be the trigger needed for another short-term Dollar rally.
Shifting our attention to the Euro, the single currency is hovering around the 1.17 mark this morning supported by Dollar's respite and the positive Eurozone data that printed steady yesterday. The all-important PMI reports will be coming in on Friday but in the meantime, Euro's price action will depend on the greenback's direction. At the same time, ECB President Mario Draghi will be speaking in Paris later today and continued optimism may also help the Euro remain afloat. However, we need to highlight an emerging divergence in our technical studies that indicates the formation of a double top pattern while momentum seems to have slowed down, a hint of a potential upcoming reversal. For a meaningful change of direction though we need to see a break below the 1.1670 support and until that happens the Euro remains on an upwards trajectory.
The Pound prints a new high this morning climbing above the 1.3150 mark buoyed by enduring Brexit optimism while a survey among academics revealed that consensus is that Theresa May will remain in power even after the UK leaves the EU. Hardliners within May's administration are regarded as the biggest threat against a soft Brexit and as long as she keeps them at bay the Pound will retain its bullish outlook. Investors are looking forward to tomorrow's inflation report that would also support the uptrend while 1.32 is still our short-term target.
Gold still trades within a broader sideways pattern capped between $1,190 and $1,210 while Dollar swings from strength to weakness. Given the uncertainty surrounding the yellow metal we can only assess its outlook in the short-term and only from a technical perspective; clearly the best option right now is to employ a mean reversal strategy looking to take advantage of Gold testing the extremes of this sideways pattern. Oil retreated yesterday to test the $68.50 lows as worries about the toll of Trump's trade war escalation on global growth - and thus demand for Oil - are keeping investors on the sidelines.
Equities in Asia are trading higher this morning on the back of a weaker Yen as Dollar is putting pressure on the Japanese currency. However, the European markets are about to open slightly below water as a reaction to Trump's decision to pull the trigger versus China even though their US peers are indicating a slightly bullish opening bell. With a few days left until the September 24 deadline stock traders will take their time to digest the US President's decision but equities' outlook going forward seems to be pointing lower.
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All times are GMT +4.
Written by Konstantinos Anthis, Head of Research