The Dollar takes control of currency flows resulting into fresh losses for the European majors amid renewed hawkishness from the Fed and geopolitical jitters. The greenback is pushing the Euro and the Pound to new lows as the Brexit talks are going nowhere prolonging the uncertainty in Europe. Equities turn bearish again as the Fed stays true on its course to raise interest rates further, Gold pushes lower and Oil fails once more to break into positive territory.
The release of the FOMC minutes last night was thought as already priced in as the Fed were expected to reiterate their hawkish view of the economy. However, the tone of the discussion revealed that policymakers were contemplating over raising rates above the “neutral” rate which raised expectations for a continuation of rate hikes next year. The Dollar reacted with gains across the board with the European majors taking the brunt of the hit as the lack of any progress in Brussels further contributed to the bearish bias. In terms of the Dollar, prices have now climbed above the 112.50 barrier versus the Yen and this opens the door for a further extension towards the 113 and 113.50 areas.
The British Pound gave up all of its earlier gains and traded below 1.31 as the meeting in Brussels resulted into no breakthrough. The latest news indicates that the EU is prepared to offer the UK an extra one year of transition to allow post-Brexit agreements to be reached but this was not received well from UK MPs - or traders for that matter. The UK retail sales data is pending for release today and expectations are set for weaker round of figures which could only make things worse for the Pound; a break below Sunday's lows found at 1.3080 will clear the path for a deeper retreat towards the 1.3030 area.
The Euro was among the currencies that saw the most weakness yesterday as the Eurozone inflation data didn't provide the push investors were hoping for. The data printed in line with expectations but with Italy's troubles still on the forefront, Brexit talks showing no progress and the 1.16 resistance proving a difficult barrier to overcome, the Euro eventually succumbed to Dollar's pressure. With prices now trading below 1.15 the next support level is found around the 1.1420 area so we may see further weakness until the Euro catches a bid.
Commodities are trending lower this morning with Gold threatening to break below its weekly lows and Oil already posting losses. The yellow metal is retreating towards the $1,215 support as the Dollar is on the rise and, as we've mentioned several times this week, the test of this support level will decide Gold's medium term outlook. At the same time, Oil failed to break above $72 for yet another time and prices have now corrected $2 lower; technical studies indicate that there's more room to the downside and prices can decline as low as $67 per barrel.
Finally, stocks are trading in the red in Asia after a negative day in Europe and the US yesterday. Geopolitical jitters are resurfacing again and traders are going on the defensive as last week's losses are still fresh on the memory. The earnings season in the US is progressing well but Fed's continued hawkishness and its clash with Trump's wishes creates yet another risk factor for equities at a time when there's certainly no shortage of those. Futures on both sides of the Atlantic are pointing lower so we should expect a bearish session today.
MARKET EVENTS TO WATCH
- UK Retail Sales - 12.30pm
- US Initial Jobless Claims - 4.30pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research