The Dollar starts the week on the right foot after picking up gains on Friday amid lower trading volumes and a risk off environment that sent higher beta currencies and US equities lower. Looking ahead, the US currency has plenty of data coming up which will provide further stimulus this week and we should see more gains, especially if the Consumer Confidence and GDP reports print positive. The Euro and the Pound ended last week in the red and they may in for more downside as Brexit and “Quitaly” headlines continue to point towards more trouble. Oil continues to trend lower with $50 in sight while Gold finds support at the $1,220 level.
Starting with the Dollar, the recent string of bearish data seen earlier in the quarter didn't take much of a toll on the greenback's price action. The US currency is pulling higher almost across the board defying our calls for a weaker Dollar towards the end of the year. So does this mean that we need to alter our outlook and look for the Dollar to end the year in strength? Quite possible, and this week's data and developments will provide a much clearer outlook for the weeks ahead.
The US Consumer Confidence and GDP figures scheduled for later in the week combined with the inflation data on Thursday and the FOMC minutes' release the day before will provide investors with plenty of guidance. And it seems that the Dollar has more to gain regardless of how the figures print: a strong set of numbers will support the Dollar as investors will stay focused on Fed's hawkish intention to keep raising rates next year while a bearish round of figures will send US stocks even lower and prompt safe haven flows towards the Dollar as a result. Dollar/Yen is trading above 113 this morning after reversing its previous downtrend and a further push higher points towards the 114 and 114.50 levels.
The Euro lost ground last week dropping from close to 1.15 all the way to 1.1350 and we may see further losses going forward. Italy's confrontation with the EU continues to make headlines with the European side threatening to impose sanctions on Italy if they don't align with EU deficit rules, a compromise which looks unlikely right now. On top of the uncertainty caused by this, Eurozone data printed softer last week and if this trends continues - with the German IFO Survey in focus today - the Euro will push further lower. Prices are hovering around 1.1350 this morning but a further continuation to the downside exposes the 1.13 and 1.12 areas.
The Pound shed some of its gains at the end of last week and is currently trading just above the 1.28 level. The European Union leaders have agreed on the Brexit draft and it's now time for Theresa May to get this agreement through the British Parliament. It will take some time for her to secure the votes needed and the Pound will remain volatile throughout this period. Support for Sterling lies around the 1.2780 area but if things get ugly again for May the UK currency may travel all the way to the 1.27 lows while fresh optimism on getting the deal approved will send prices towards the 1.2950 highs.
Gold has stalled its ascent after hitting the $1,230 level last week and now prices are oscillating around the $1,225 level again. The yellow metal's price action will depend on Dollar's flows going forward and if we see more strength from the greenback's side then the $1,220 level will be tested and a break below this points towards the $1,212 area. Oil continues to trend lower and oversold conditions are evident all other the technical studies; however, investors prefer to remain on the sidelines in expectation of the G-20 meeting due next week.
Equities in Asia are trading with a positive bias this morning even though US stocks ended the week in the red on Friday. Nevertheless, the European and US futures are pointing higher suggesting a potential reversal for the global stock markets but after the steep losses seen earlier in the month it will take a lot of effort to reverse the bias.
MARKET EVENTS TO WATCH
- German IFO Expectations - 1pm
- German IFO Current Assessment - 1pm
- Draghi speaks in European Parliament - 6pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research