Global markets remain in a state of uncertainty as investors are trying to decide whether they should go on a risk-on or risk-off mode. The Dollar saw mixed price action over the past 24 hours even though 10-year yields dropped to fresh lows, with the commodity dollars driving lower while Yen gained. Equities were mixed, Gold retreated deeper and Oil dropped below $60 again.
The combination of easier monetary conditions and bearish market data makes it hard for traders to make up their minds on whether they should grow more risk prone or averse. The Dollar is on a seesaw trading higher versus the Euro and the commodity dollars but lost ground versus the Yen. The 10-year yields are now trading below 2.4%, remaining on a bearish trend, and the question has become whether we go higher or lower from here. A bounce on the UST yields will fuel a correction rally for the greenback but a further decline will put the US currency under more pressure. Today's US GDP report will play an important role in dictating direction and a miss here would make things worse for the Dollar.
Sterling remained trapped in the same range as yesterday's votes in the Commons resulted into nothing. The next step is expected to be that Theresa May will now push for a third vote on her Brexit plan and what has changed is that she's now willing to sacrifice herself to get the deal over the line. Recent reports speculate that the British PM has offered to resign after the deal is passed in order to secure the support of the hardliners within her party, which is another twist in the story. Clearly, if the deal gets approved the Pound will rally towards and above 1.3350 but things will get complicated again when the time comes for the Tory party to select a new PM. The likes of Boris Johnson and Jacob Rees-Mogg as potential candidates may not go well with Sterling bulls.
Gold is trading around $1,310 this morning after retreating deeper over the past 24 hours. This is a key support level as an ascending trendline is now coming under threat and if prices manage to break lower a further retreat towards the $1,300 level may be seen. Oil saw similar action, moving lower again to test the $59 level and the formation of a double top around the $60.50 mark suggests a pause in the rally; nevertheless, for a fresh leg higher to trigger soon prices need to remain above the $58 level, otherwise we may see $55 soon.
Finally, equities had a mixed day mid-week and even though the EuroStoxx 50 closed with marginal gains, the US markets ended the day slightly in the red. Futures in Europe are pointing slightly higher this morning while the US is expected to open with only a small retreat. The broader bullish conditions for stocks remain in place but it is clear that investors are a bit hesitant this morning while assessing the risk-on and risk-off catalysts.
MARKET EVENTS TO WATCH
- US Gross Domestic Product - 4.30pm
- US Initial Jobless Claims - 4.30pm
- German Consumer Price Index - 5pm
All times are GMT +4.