Wednesday, June 27, 2018

US Dollar recovers but declining Treasury yields suggest more weakness ahead

Tags
  • Dollar
  • Euro
  • Gold
  • Yen

MORNING BRIEFING

The Euro and the Pound declined yesterday on the back of bearish central bank remarks while the Dollar received some fresh support after a few days in the red. Equities were able to post some minor gains closing in positive territory underpinned by President Trump's comments that he will leave the decision to curb Chinese involvement in US industries to a committee thus taking a less confrontational path. Commodities diverged with Gold breaking lower while Oil pushed higher to hit $70 per barrel.

The Euro turned negative yesterday after ECB member Lane suggested that Eurozone inflation is recovering but still remains below target. Looking ahead for the single currency, the test of the 1.1650 support will be critical in deciding the short-term direction. Our base scenario suggests another move towards the 1.1720 highs as US Treasury yields decline this morning hinting on fresh Dollar weakness. Albeit, in case the US Durable Goods report helps the Dollar recover further we could see a break below the 1.1650 support towards the 1.1580 level.

The Pound was also in the red yesterday as new BoE member Jonathan Haskel's public remarks were on the bearish side. The new member of the Monetary Policy Committee preferred to stick to a cautious approach citing potential risks in raising rates too quickly. This downplays any hopes for a rate hike soon and the Pound is now trading just above the 1.32 mark. Today Governor Carney will be speaking in public after the release of the Financial Stability Report and if we receive fresh bearish bias then Sterling will travel towards the 1.3180 area.

Dollar/Yen was buoyed by the US currency's recovery and pushed higher to trade above the 110 mark. However, this has to be considered a technical reaction after the strong losses seen last week and with US Treasury yields trending lower this morning the break above 110 is put to the test. The intra-day support stands around the 109.80 area and a break below this will send prices towards yesterday's 109.40 lows.

Oil rallied yesterday after news that the US is pressuring its allies to stop buying Iranian oil by November 4th and prices have now reached the $71 mark. The black gold has been on a bull run over the past few days gaining more than $7 per barrel and it now remains to be seen whether the production increase agreed between the OPEC members will allow prices to remain around the $70 mark. The key support remains at the $68 area and as long as we trade above this then a move towards the $73 May highs remains in the cards.

Equities ended the day in a mixed manner yesterday with the European markets closing marginally higher while the US bourses were able to move into positive territory. This morning the European and US futures are mixed pointing towards a muted opening bell while the Asian markets are trading in the red. Investors remain focused on developments in the trade spat between the US and well, the rest of the world and today's price action hinges on any fresh news. The bias is clearly to the downside so we should remain cautious and look to avoid longer terms positions at this time.

MARKET EVENTS TO WATCH

  • BOE's Carney Speaks About Financial Stability Report - 12.30pm

  • US Durable Goods Orders - 4.30pm

All times are GMT +4.

 
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