A positive start of the week for the Dollar and the global stock indices yesterday on the back of the strong Black Friday sales. The greenback was higher across the board pushing Dollar/Yen above 113.50 while the commodity dollars also took a significant hit as Trump showed no willingness to back down from his trade spat with China. The Euro and the Pound were lower for the day with ECB's Mario Draghi sending a cautious message. Gold retests the $1,220 level while Oil bounced from the $50 area.
Strong Black Friday sales figures sent the Dollar higher again. According to analysts' estimates, consumer spending was 18% higher this year compared to 2017, with lower unemployment and higher wages the driving forces behind this increase. These sales figures reflect the robust state of the US economy and the greenback benefited as a result. At the same time, Trump's remarks on China ahead of the G-20 meeting were less than optimistic with the US President expecting to increase tariffs against China to 25% next year and possibly even target mobile phones and personal computers.
Amid this environment we expect the Dollar to remain front and center but whether it will be able to extend its gains depends on the fresh data coming in from the US. Today's Consumer Confidence report is predicted to come in a bit softer but tomorrow's FOMC minutes' release should reflect more Fed hawkishness. As such, the greenback should be in a position to keep pushing higher with the 114 mark against the Yen coming into focus. Concurrently, the AUD and the NZD will also remain under pressure as Trump doesn't seem to ease the pressure against China so we should be looking for more losses for the two commodity-correlated currencies.
The Euro retests its 1.1330 lows and the bias for the currency is pointing towards more losses. Yesterday, Mario Draghi highlighted the weakness seen in the recent Eurozone data and global growth figures and called for patience. This points towards a potential delay in ECB's plans to start raising interest rates after the summer of 2019 amid a global slowdown and political uncertainty in the Euro area. Given the bearish catalysts in play and expectations for a continuation of Dollar's rally we expect the Euro to proceed lower with 1.13 the immediate target and 1.1220 the next area of interest.
Sterling is also pointing lower this morning dropping below the 1.28 mark and with the Dollar on the offensive and the key Brexit battle in the Parliament dead ahead the Pound is vulnerable to more downside. The stakes are high for Theresa May as she's embarking on a journey to secure the necessary support to get her Brexit deal through the Parliament. In the short term, Cable is pointing lower as the odds of May getting the votes she needs are slim: the interim support lies at 1.2760 and a slide below that clears the path towards the 1.27 round figure.
Gold is trading with a bearish bias this morning as yesterday's price action was dominated by Dollar's momentum. Lingering uncertainty surrounding the Sino-US trade relationship would normally underpin the yellow metal but with the Dollar being the prime beneficiary of risk-off flows the path of least resistance for Gold points lower. A break below the $1,220 support will take prices all the way to the $1,214 area. Oil bounced from the $50 level and a medium-term bottom might be forming. However, we need to be patient; the fundamental factors are pointing towards a correction to the upside but investors will likely wait for news from the G-20 meeting before making up the minds.
Equities had a positive day in Europe and the US yesterday as retail spending during Black Friday was remarkably strong and analysts expect similar figures from Cyber Monday's sales. However, the key issues in the US and Europe still persist and this morning the futures on both sides of the Atlantic are pointing lower. With the G-20 meeting ahead of us investors will likely focus on the geopolitical spat between the US and China and with zero progress seen on this front equities will be in for a bumpy ride.
MARKET EVENTS TO WATCH
- Fed Vice Chairman Clarida Speaks in New York - 5.30pm
- US Consumer Confidence - 7pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research