The Dollar extends its losses for a second day on the back of the fresh US data and Fed Powell's comments on the economy. More figures are expected from the States today but they should do little to change the current bias. The Pound seesaws between 1.29 and 1.30 as Theresa May's cabinet seems to accept the Brexit draft she put forward. Equities ended the day in the red while Gold took advantage of Dollar's respite and corrected higher, hitting $1,215.
The greenback is at the forefront today after the release of the inflation figures and Jerome Powell's speech yesterday and the pending Retail Sales report later in the day. The inflation data printed mostly in line with expectations but the year-on-year Core CPI component came in slightly lower; at the same time Powell's remarks on the economy, even though clearly on the bullish side, didn't contain that extra something that Dollar bulls were hoping for. As such, the Dollar trended lower across the board and its weekly performance now depends on how the retail sales data prints today.
Economists are predicting a strong rebound in consumer spending for October, underpinned by the robust employment environment and steady wage growth. The stakes are high though with consensus expecting a 0.6% rise in retail sales last month so a potential miss may spoil the party for the Dollar and force it into a deeper correction. Dollar/Yen retreated to 113.50 yesterday and a lackluster US report today will clear the path towards 113.
The Pound has been rather volatile over the past 48 hours and for good reason. The inflation data from the UK came in softer than expected during the European session yesterday preventing the Pound from building momentum to the upside. As such, when the positive news that PM May's cabinet seems to have reacted in a encouraging manner to her Brexit draft, Sterling was only able to hit 1.3050. Today the focus will equally be on the retail sales data from October - expected to show a healthy rebound - and May's attempt to present the Brexit draft to Parliament. Volatility will remain elevated and all bets are off: depending on the fresh data and the parliamentary discussion, a break above 1.3050 may clear the door towards 1.32, otherwise a reversal lower will take the Pound to 1.29 again.
Gold rallied yesterday on the back of Dollar's continued respite and was able to come off its $1,200 lows. Prices climbed as high as $1,215 and are now threatening to enter bullish territory again. However, for this to happen we need to see a break above the $1,215 resistance which, depending on Dollar's performance, may drive Gold towards $1,230 again. Oil bounced higher after the initial test of the $55 support but we need to give it time before deciding on its outlook; as mentioned yesterday this level is a key technical area and whether it holds or not will dictate the medium-term outlook for Oil.
Equities closed in the red yesterday but this morning early indications suggest a bullish opening bell. Investors are happy to see the US and China looking for a way to resolve their trade dispute and if there's more progress on this front, the global stock markets will trend higher again. The European and US futures are trending slightly higher this morning so, unless we get any nasty surprises from the various political fronts, the day ahead looks bullish.
MARKET EVENTS TO WATCH
- UK Retail Sales - 1.30pm
- US Retail Sales - 5.30pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research