During a week full of US-related reports and fresh data, it's the Euro that comes front and center today in light of the Gross Domestic Product figures from several economies. Investors will be particularly interested to see how growth fares in the Euro area in an attempt to gauge the Single currency's outlook versus the US Dollar. Meanwhile, housing data and consumer confidence figures are on the docket from the States as well. The Dollar Index came off its highs yesterday, but Gold was not able to capitalize on this while equities were marginally positive around the globe.
The Single currency will attract investors' attention during the European trading hours with the Eurozone, German and Italian GDP and employment figures pending for release. This data comes at a particularly interesting point, when Dollar's strength seems to be put to the test and traders are wondering whether long opportunities on the Euro are really an option. Economists are expecting a positive set of figures, especially from Germany where unemployment should remain at current low levels, while the Euro area GDP is also predicted to reflect the mild pickup in trade activity during recent weeks.
However, there are some bearish points to focus on as well. The Italian GDP level is expected to print at -0.1%, indicating that the country is in a state of recession, and the question is how much this news is priced in the Euro's recent negative bias. We believe that traders realize the difficult state that Eurozone's third largest economy find its self in and will not be swayed by today's dovish data. This would normally suggest that the Euro stands to gain from today's figures and that may turn out to be true - but only in the short term. The broader outlook for the shared currency remains bearish, in light of anemic inflation and cautious ECB policy, so any rally higher should be short-lived and a potential opportunity for short sellers to pounce on.
Elsewhere, the Dollar lost ground over the past 24 hours even though the Personal Spending report indicated strong consumer demand. The bleak part of the report though was again inflation, with the PCE Core and Deflator readings coming in softer than expected. What will dictate the greenback's price action during this week is how much worried will Jerome Powell sound in regards to inflation during his press conference tomorrow, after the FOMC rate decision. Meanwhile, today's Consumer Confidence figures and Pending Home Sales data should provide a short-term lift to the greenback before tomorrow's key event. Dollar/Yen looks vulnerable in the medium term but over the next 24 hours a bounce towards 112 seems more likely; however, in case of a sudden break below 111.40 more losses should be expected.
Gold retreated as well yesterday even though the Dollar was pointing lower. Good progress on various geopolitical fronts is preventing traders to go full on the offensive in regards to demand for the yellow metal but this will largely be decided by the greenback's direction after tomorrow's FOMC event. In the interim, the bounce from the $1,280 support is a positive sign for Gold's bulls and another test of the $1,288 highs seems likely; however, for a meaningful move beyond that, a fresh Dollar-bearish catalyst is needed hence we should focus on the Jerome Powell's comments tomorrow.
Oil found some support around the $63 level and bounced half a dollar higher yesterday but its short-term direction is still in doubt. Prices have now stalled after the overnight push higher and the current area will be a proving ground for the black gold: should it manage to hold above the $63 mark then a further recovery towards $65 seems likely, otherwise another leg lower will expose the $62 level.
Finally, equities were marginally positive during the first trading session of the week. The EuroStoxx 50 closed 0.04% above water while the US markets were around 0.1% in the green. Positive growth but weakening inflation in the US are puzzling investors that are currently sitting on the sidelines, waiting to see what the Fed will focus on. Should Powell emphasize the strong growth domestically this may be translated into higher rate hikes' odds, pushing stocks lower; otherwise, cautious comments over soft inflation figures will point towards a steady - or potentially easier monetary policy - which will be a boon for stocks globally.
MARKET EVENTS TO WATCH
- Euro-Zone Unemployment Rate - 1pm
- Euro-Zone Gross Domestic Product - 1pm
- German Consumer Price Index - 4pm
- US Consumer Confidence Index - 6pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research