Dollar Drive Continues
The US Dollar has started the week on a strong footing with the USD index continuing its recent rally. The index has now broken firmly above the 97.11 level and is well on its way to testing the next resistance level around 98.30. However, the outlook over the week has heavy downside risks as the market awaits the US FOMC meeting on Wednesday. The Fed is widely expected to cut rates by .25%. There is also the risk of a larger .50% cut, which would weigh heavily on USD.
EUR Heads Lower
EURUSD has started the week under pressure. The currency has been weighed on by the stronger US dollar, as the decline from last week’s ECB meeting continues. Although the ECB kept monetary policy unchanged, Draghi noted that a rate cut in the coming months would likely be necessary. He highlighted that the central bank is also discussing other measures which can be used to tackle weak growth. EURUSD trades 1.1124 last as price breaks back under the 1.1130 level.
GBP Hits Lowest Levels Since Early 2017
GBPUSD has started the week on a very heavy note indeed with price breaking down to its lowest levels since March 2017. A combination of a stronger USD, as well as Brexit fears, is weighing on GBP. Traders will be keen to hear from the BOE on Thursday, to see whether the bank feels the risks of a no-deal Brexit have increased following Boris Johnson’s appointment as PM. GBPUSD trades 1.2335 last with price having broken under the 1.2383 level.
SPX500 Rallies Again
Risk assets have started the week in the green. Despite a stronger USD, expectations of Fed easing this week are keeping SPX500 underpinned at the 3019.38 level. While we could see some disappointment if the Fed only cuts by .25%, which is now well priced in, a .50% could see a strong move higher in equities prices. Focus will also be on the Fed’s forward guidance, with the market currently looking for another rate cut this year.
JPY & Gold Lower
Safe havens have had a softer start to the week given the backdrop of a stronger USD and higher equities prices. Both gold and JPY are lower against the dollar over early European trading on Monday. However, there is potential for sudden reversals around the FOMC later this week. USDJPY trades 108.63 last, with price turning back towards the 108.77 level following last week’s rejection. XAUUSD trades 1418.89 last, with price still sitting on the rising trend line from July lows for now.
Crude Capped by USD Strength
Oil prices have started the week on a quiet note. Last week, the EIA reported the sixth consecutive weekly decline in US crude stores which has helped assuage concerns over the demand outlook. However, the rally in USD has offset the moves in inventories, though any USD weakness later in the week could help crude rally once again. For now, crude sits at 56.27 with price remaining above the 54.85 level currently.
Commodity Currencies Start Soft
USDCAD remains well supported today with price continuing its advance above the 1.3145 level which was broken last week. The rally in USD, however, has been offset by stronger oil prices and given the potential for a USD down move in response to the Fed later this week, we are seeing some stalling in momentum.
AUDUSD keeps a bearish tone once again today with price sitting just below the .6910 support level. The market has been in a heavy decline since testing the bearish trend line from 2019 highs. Focus this week will be on headlines surrounding the US/China trade talks which could offer AUD some relief if things go well.