Friday, April 26, 2019

US GDP figures will dictate the price action in the Dollar, US equities today

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

MORNING BRIEFING

At the end of the week it's the Dollar that remains at the center of attention poised to score its best 5-days streak since February. The focus today will be on the release of the US Gross Domestic Product figures that may extend the greenback's advance or force a correction, should they print softer than expected. The rest of the majors moved further lower with the Euro and the Pound losing more ground versus their US counterpart, but the Yen gained. Pressured by the losses in the US equity markets, Dollar/Yen moved below 112, Gold also saw higher demand but Oil reversed course to the downside.

The release of the US GDP data will conclude what seems to be the best week for the US Dollar since February with the Dollar Index holding above the 98 mark. Fragile growth abroad and relative over-performance of the domestic economy compared to other developed markets have kept the greenback in demand. Will today's GDP data alter this outlook? It remains to be seen and definitely a lower reading will bring worries over a US slowdown back to the surface but will it change the currency's outlook materially enough?

Economists' consensus predicts a pickup in GDP growth for this quarter at 2.3% on an annual basis, up from 2.2% last time around but there are also voices of caution out there. Bloomberg Economics expects only a 1.9% advance, which will be a markedly bearish reading, but will it make a difference? Well, the answer is not a simple yes or no. Clearly, the likes of the Euro and the Pound may see a knee-jerk reaction higher if the report prints badly, mostly based on some profit-taking ahead of the weekend but with Europe and the UK in a worse state compared to the US we don't expect the broader downtrends in the European currencies to reverse.

Where things may be different is on instruments like the Japanese Yen, Gold and US equities. Obviously another dovish set of US figures will not bode well for the equity markets, especially at a time when they're testing all-time highs and everyone is wondering how farther the rally can go. Even a moderate sell-off in the US indices will trigger further volatility and the likes of the Yen and Gold may gain. Prices are hovering below 112 for the Japanese currency versus the Dollar, threatening to end a medium-term uptrend and more downside pressure could drive Dollar/Yen to 111 and 110 in a hurry.

At the same time, Gold attempted to break above $1,280 yesterday but lacked follow-through. The US GDP release will act as a catalyst for the yellow metal's performance today and a softer reading should push prices higher and en route to the $1,288 and $1,293 levels; otherwise, a printing in line with expectations will likely keep Gold subdued below $1,280. Oil retreated over the 24 hours after spending a couple of days around the $66.50 and the $65 level is now put to the test; as long as this level holds then prices may see another leg to the upside, otherwise a deeper correction points towards the $63 area.

Equities closed in the red with the EuroStoxx 50 losing 0.31% while the US markets lost around 0.3% on average. Futures on either side of the pond are trading almost flat this morning pointing towards a muted opening bell; however, with the US data pending for release investors may divert their attention away from earnings today and focus on the domestic economy's performance. A steady GDP reading will reinforce bulls' appetite as worries over a recession will diminish but a potential miss may trigger some nervous profit-taking ahead of the weekend.

MARKET EVENTS TO WATCH

  • US Gross Domestic Product Annualized - 4.30pm
  • University of Michigan Sentiment - 6pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Research