Bulls boost USDBy Arnaud Masset
Buyers made their great return to equities on Monday, after disappointing wage growth on Friday suggests the Fed will not add a fourth rate-hike this year. The Dow Jones Industrial Average rose 1.31% to 24,776 points, while S&P500 added 0.88%. On Tuesday, Asian equities followed with the Nikkei rising 0.66% and the CSI 300 adding 0.24%. EUR/USD fell 0.18% to 1.1730 amid renewed USD strength. The single currency ended last week off the wheel after a mixed job report. We expect further euro weakness in the short-term - mostly due to an overall dollar strength – with the 1.1681 as our first target, then the following support stands at 1.1640.
Yesterday the dollar index stabilised around 94.10 and has been trading sideways since, as investors remain nervous about the China-US trade war. For the last two months, the market has been trading range-bound as investors already completed their reallocation towards less risk. Uncertainty is too high right now; therefore, the “wait-and-see” approach will prevail. Given that the dollar is currently at the bottom of its 2-month range against most peers, the greenback should make a comeback.
Pounding the poundBy Vincent-Frédéric Mivelaz
As ministers resign over Brexit, the pound is getting pounded. Yesterday’s GBP/USD bearish trading was excessive. Closing at 1.3260 (-0.17%), a strong rebound is expected short-term. Currently trading at 1.3270, the pair is expected to reach 1.3350 highs.
The fate of Brexit negotiations is now in the hands of EU leaders and specifically European Council President Donald Tusk. The UK’s Brexit white paper due Thursday will be decisive. If it’s seen as ‘cherry picking’, the EU will take a tougher line. Still, the pessimism is overdone. Resigning Brexit Minister David Davis made no mention of overthrowing the Conservative Party. Besides, supporters of a hard Brexit remain a minority in the parliament, while moderates remain in majority, both in the Conservative and the Labour parties.