The Dollar extended its recovery yesterday boosted by elevated risk-off bias after the White House clarified that President Trump is not backing off from his hard line against China. The Euro and the Pound pushed lower yesterday as the decline in US Treasury yields did little to slow down Dollar's advance. It seems clear that investors are more focused on the geopolitics that fuel a risk aversion rally rather than market dynamics.
The Euro lost around 100 pips yesterday when the greenback moved higher against the shared currency. The US Durable Goods report came in stronger than expected fueling more demand for Dollars and now the Euro is about to test the major 1.1520 support that triggered a rally higher twice over the past 30 days. Whether this time we will see a similar reaction remains to be seen. Unfortunately the only important piece of data on the calendar for the Euro is the German inflation report which analysts expect to print softer on a monthly basis.
Having said that, there's room for a surprise higher today in the German inflation report given the higher energy prices with Oil trading around $73 per barrel. Should we see a higher reading then it's likely that the Euro will find support ahead of the 1.1520 level and a bounce towards 1.1570 would be possible. Otherwise, the target for the Euro remains the 1.15 figure.
The Pound remains weak having dropped more than 200 pips since last week's highs after comments from the Bank of England policymakers hinted on a cautious stance regarding their interest rate policy. Dollar's correction made things worse and now Cable is trading below 1.31 but technical studies suggest that the selloff looks overstretched so some consolidation could be in the cards. However, BoE Chief Economist Haldane will be speaking in London today so fresh bearish remarks might not allow for any recovery and the next support for the Pound lies around the 1.3050 area.
Commodities extended their recent moves with Gold hitting $1,250 and Oil rallying to $73 per barrel. Dollar's momentum doesn't allow Gold to catch its breath and there's a complete lack of support between the current price levels and the $1,236 area. If we see more Dollar demand today then Gold will continue trending lower while for any meaningful reaction higher we first need to see a break of the $1,255 resistance. Oil seems to be losing some momentum after hitting the $73 resistance and some consolidation is likely, the support lies at $70 per barrel.
Finally, equities had a mixed day yesterday with European markets managing to close around 1% higher while the US bourses lost ground to end the day in the red. The Asian markets are marginally lower this morning and the European futures are taking their cue from yesterday's US session with the FTSE and the DAX expected to open slightly below water. The US futures on the other side seem more upbeat but the overall bias is cautious which could suggest further defensive positioning.
MARKET EVENTS TO WATCH
- German Consumer Price Index - 4pm
- US Gross Domestic Product Annualized - 4.30pm
- BOE Chief Economist Andy Haldane Speaks in London - 5.30pm
All times are GMT +4.