Bearish risk sentiment combined with softer data from Europe and the UK drive the European majors lower, with the Euro hitting 1.12 and Sterling reaching 1.29. Worse than expected ZEW figures and disappointing wage growth in the UK weighed down on the high beta currencies, with more downside possible today. The focus over the next 24 hours will be on the Dollar ahead of the US retail sales report, which will be keenly monitored by investors and speculators alike. Equities were able to notch handsome gains, Gold eased below $1,300 again and Oil treads water between $61 and $62.
Starting our overview with the Dollar, the US currency edged higher yesterday scoring gains across the board. With investors still worried that the stalemate between the US and China could turn into a long-lasting situation, safe haven demand drove the greenback to the upside. Today though the spotlight falls on the US retail sales figures, which is always an important bellwether of economic prosperity in the States as consumers' sentiment is sensitive to the changes in the geopolitical and fiscal conditions.
In any case, today's report is expected to come in at 0.2% month-on-month, which will be a low yet positive reading. Furthermore, if the data beats economists' estimates, the Dollar will receive an additional boost, potentially driving Dollar/Yen to 110, putting the currency's downtrend on pause. However, a softer reading today, especially given the already low 0.2% expected advance, will be a serious blow to the greenback: the Yen will advance to 109 and Gold will shoot above $1,300 again.
The Euro came under fresh pressure yesterday when the ZEW data disappointed: the Expectations component printed in negative territory reflecting investors' worries in regards to the German economy. With prices hovering just above the 1.12 mark this morning, the shared currency will take its cue from the German and Eurozone GDP figures scheduled for release during the London session. A positive reading will allow for some optimism but the key event of the day will be the US retail sales report, where strong figures will likely drive the Euro to fresh lows.
Sterling was simultaneously hit by risk-off bias and slower wage growth figures during yesterday's session. Prices have now dropped around 150 pips since the start of the week and the fact that the labor market is showing signs of weakness is becoming a major concern. Brexit hasn't been resolved yet and this is a serious headache for companies in the UK, as reflected by the lack of salary hikes seen on yesterday's data. Looking ahead, with the US retail sales report at the forefront today a bullish reading for the greenback may send Sterling all the way to the 1.28 area soon.
Gold pulled back from the $1,300+ levels over the past 24 hours as the recovery in the equity markets signaled a somewhat improved sentiment. Having said that, the stakes in the trade war between the US and China remain high so we wouldn't dismiss a further advance for the yellow metal in the near term. Today though, with the focus being on the US retail sales report, Gold will take its cue from the greenback's trading action: a strong reading will drive Gold towards the $1,290 mark but a miss may clear the path towards $1,310.
Global equities recovered yesterday as investors are hoping that there will be progress in the trade talks during the next couple of weeks until the new tariffs come into effect. Furthermore, with the US retail sales report expected to print on the positive side today, market participants seem to worry less about a recession coming to the US any time soon. On that note, equity futures in Europe and the US are pointing higher and a robust consumer spending report will help equities recover further in the near term.
MARKET EVENTS TO WATCH
- German Gross Domestic Product - 10am
- Euro-Zone Gross Domestic Product - 1pm
- US Retail Sales - 4.30pm
- U.S. Crude Oil Inventories - 6.30pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research