Tuesday, September 4, 2018

Will Dollar pick up steam ahead of Friday's Non-Farm Payrolls report?

Tags
  • Dollar
  • Gold
  • Euro
  • Pound
  • Stocks

MORNING BRIEFING

The relatively quiet start of the week for most financial markets yesterday acts as an appetizer for the days ahead as investors are eager to receive fresh stimulus to dictate their actions. The European majors remain front and center with the Euro treading water around 1.16 while the Pound edged lower as predicted yesterday on the back of bearish data and Brexit nervousness. Equities in Europe traded marginally higher yesterday while the US markets were closed for the Labor Day holiday while this morning futures on both sides of the pond are pointing higher.

The Pound saw most of the action yesterday while the rest of the major currencies were trading sideways. Sterling slid lower to trade close to 1.2850 as fresh news from the Brexit negotiations reveals that “nothing is agreed until everything is agreed” while the Manufacturing PMI data for August unexpectedly dropped. Today the focus will be on BoE Governor Carney's testimony in front of Parliament and any remarks on central bank policy and Brexit will take their toll on the Pound. The Construction and Services PMIs will also be released over the next 48 hours and if we see a similar decline to yesterday's manufacturing data then the Pound will retreat further; the interim support lies at 1.28 and a break below will expose the 1.2650 lows.

The Euro remained largely unchanged yesterday hovering above the 1.16 figure while traders are focusing on Italian politics and whether the newly appointed government's budget plans will be the new risk for the country and the Euro region in general. The Italian coalition government is meeting today but, with officials confusing markets with their recent comments on whether they will increase spending or not, traders will prefer to stay on the sidelines until they get some clarity. There is strong support for the Euro around the 1.1550 area but in case the shared currency moves below this then we may see a rapid correction towards August's lows.

The Dollar enjoyed a very quiet first session for the week and the month as the US markets were closed for the Labor Day holiday. The US currency is at a crossroads and the bull run seen during the first half of the year is now put to the test; recent remarks from President Trump over the Fed's tightening path are casting some doubts on whether more Dollar strength will be welcomed by the US President. Nevertheless, the case for a rate hike in September remains intact and the short-term action will hinge on Friday's NFP report so traders will likely start building up their Dollar long positions in anticipation of the fresh data. Dollar/Yen is edging higher this morning and as traders returns to their desks more demand for the greenback may send prices towards the 111.80 area.

Gold lacked direction for yet another day yesterday spending the session on either side of the $1,200 area. The yellow metal's direction will be dictated by Dollar's flows and if market participants start increasing their bets in favor of the greenback ahead of Friday's NFPs then Gold may come under fresh pressure. A break below the $1,195 lows will clear the path for a $10 correction towards the $1,185 area. Oil on the other hand picked up steam yesterday climbing above the $70 mark but the true test will be the $70.50 area and if prices manage to overcome this then the next area of interest will be the $73 level.

Equities in Asia are mostly above water this morning taking their cue from the European markets that ended the day in the green. Investors are still worried about the lack of progress in the US-China trade talks but this should be anticipated at this stage so the bullish bias in the global equity markets may extend for a bit more. Futures on both sides of the Atlantic are pointing higher today and the respite from any bearish trade-related headlines seems to allow for some positivity in the markets. However, it will be interesting to see how the US equity indices will react when fresh gains retest recent highs and whether momentum still remains strong, maybe it's time to start picking tops?

MARKET EVENTS TO WATCH

  • UK Construction PMI - 12.30 pm
  • BOE Governor Carney Speaks in London - 4.15pm
  • US ISM Manufacturing - 6pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Market Research

 
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