The Dollar is back on the rise this morning after a brief respite yesterday and the spotlight today will fall on fresh data from the US and Britain. At the same time, the potential repercussions of Turkey's troubles are casting doubts over the European economy and there's a sense that Europe might be the epicenter of another financial crisis, this time caused by emerging markets' performance - or lack thereof. Equities were rather mixed yesterday with the European markets closing under water while the US bourses were able to end the day in positive territory.
The respite seen in the Euro at the start of the week didn't last long and after a couple of days of sideways action on either side of the 1.14 figure the price action is again pointing lower. This morning the shared currency is trading just above the 1.13 mark even though yesterday's GDP figures printed steady and the ZEW Survey came in better than expected. However, it's not last month's performance that worries investors but rather what lies ahead: Turkey's troubles will not go away soon, the risk of a potential impact on the European banks lingers around, Trump's protectionist policies are taking a toll on Eurozone exports and finally China's slowdown threatens to reduce demand for European goods. As such, the path of least resistance for the Euro points lower and if the 1.13 area gives in we could see a further retreat all the way towards the 1.12 mark.
The Pound is at the top of our watch-list for a second day in a row as this is a week full of fresh data from the UK. Yesterday, the UK employment report did little to help the Pound recover, even though unemployment ticked lower, and the British currency slipped to 1.27 overnight. Today our focus will be on the release of the inflation data from the UK. Expectations are set for inflation to tick higher and this may be an opportunity for Sterling to recover; high inflation was the reason why the BoE raised interest rates last month and if we get another strong reading today then bullish speculators might be inclined to try their luck. However, given the severely bearish bias in place, we see little chance that any gains will be sustained and fresh Dollar strength could take prices all the way to 1.26.
The greenback will also be in play today as the US Retail Sales report is pending for release late in the afternoon. With the US labor market going from strength to strength and wages rising it's likely that consumer spending will also improve; having said that, the headline figure is expected to print lower today but the core retail sales component - excluding auto and gas - is likely to rebound reflecting the overall strength of the domestic economy. Should this be the case, the Dollar will likely continue moving higher putting pressure on the European majors and commodity currencies.
Commodities were in the red yesterday with Gold hitting another low and Oil struggling to build fresh momentum to the upside. The yellow metal dropped further and this morning prices are around the $1,190 area; from a technical perspective Gold is strongly oversold but with Dollar being on the offensive more losses seem likely with the $1,180 area coming into focus. Oil on the other side is trying to pick up some pace but with Crude stockpiles increasing last week according to API data buyers have trouble overcoming the $68 level. Today's Crude Oil Inventories report will provide fresh stimulus and depending on how it prints Oil could either break above $68 en route to the $70 area or retreat to the $66 support.
Equities in Asia are trading with a bearish bias with most markets remaining under pressure. The European stocks traded lower yesterday as Turkey's issues cast worries over European banks' stability. However, the US exchanges were able to end the day in positive territory which is an encouraging sign that a potential contagion seems less likely at this stage. This morning the European and US futures are mixed suggesting a muted opening bell and it looks like investors will take their cue from the fresh UK and US data, which will provide the direction for the equity markets.
MARKET EVENTS TO WATCH
- UK Consumer Price Index - 12.30 pm
- US Retail Sales - 4.30pm
- U.S. Crude Oil Inventories - 6.30pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Market Research